Munjal Showa Management Discussions

Industry Structure and Development

The Indian automobile sector is one of its principal industrial catalysts, providing jobs to more than 32 million people, directly or indirectly, and contributing more than 7% to the GDP. The Indian auto industry is recognised as a ‘sunrise industry as it has emerged as one of the fastest growing sector over last few years. Domestic automobiles production The Indian automotive industry is expected to reach US$ 300 billion by 2026. India enjoys a strong position in the global heavy vehicles market as it is the largest tractor producer, second-largest bus manufacturer, and third-largest heavy trucks manufacturer in the world.

Two wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-sized cars. Two wheelers and passenger cars accounted for 80.8% and 12.9% market share, respectively, accounting for a combined sale of over 20.1 million vehicles in FY20.

Passenger vehicle (PV) In FY22, total passenger vehicle sales reached 3.07 million, while automobile exports stood at 31,207 units in September 2022. India has significant cost advantages, as automobile firms save 10-25% on operations vis-a-vis Europe and Latin America.

Overall, automobile export reached 4.13 million vehicles in FY21, growing at a CAGR of 3.47% during FY16-FY21. Two wheelers (79.38%), passenger vehicles (9.79%) and three wheelers (9.52%) made up the majority of exports from India. The Indian automotive industry is targeting to increase export of vehicles by five times during 2016-26.

EV sales, In Q3 FY22, electric vehicle (EV) sales reached a new high of 5,592 units. Overall, in 2021, 329,190 EVs were sold in India, indicating a 168% YoY growth over last years sales of 122,607 units. The electric vehicles industry is likely to create five crore jobs by 2030.

While the whole nation is focusing on becoming_ ‘Atmanirbhar Bharat, it is an opportunity for many sectors and contretemps for a few. The government has urged the Indian auto components manufacturers to increase localization to 100 percent and provide a push to local manufacturers to bolster the domestic supply chain and strengthen the automotive industry from its core._ Given the current scenario, most of the auto manufacturing companies have shown their interest in adopting the governments 100 percent localization movement but seeks government support in terms of infrastructure deficit, talent crunch, industry scale-up policies, access to world-class technology and practices, remaining cost-competitive and availability of cost-e_ective capital. The industry is facing challenges from rapid change in technology in this segment which calls for more funds for investments in research and development. As regards the trade policy, the challenges mainly faced by Indian manufacturers are slowing down of investment in the OEM auto sector, duty on imported auto parts, and the sharp rise in imports mainly from ASEAN countries._

Market Size

The Indian auto-components industry can be broadly classified into the organised and unorganised sectors. The organised sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value precision instruments while the un-organised sector comprises low-valued products and caters mostly to the aftermarket category.

In order to keep up with the growing demand, several auto makers have started investing heavily in various segments of the industry during the last few months. The industry attracted Foreign Direct Investment equity inflow (FDI) worth US$ 33.53 billion between April 2000-June 2022, accounting for 5.54% of the total equity FDI during the period.

Opportunities and Threats

• India is emerging as global hub for auto component sourcing

• Relative to competitors, India is geographically closer to key automotive markets like the Middle East & Europe

• In December 2018 India pitched to boost its exports in auto components in the market of China.

• In September 2015, Automotive Mission Plan 2016-26 was unveiled which targets a fourfold growth for the sector

• Strong support for R&D & product development by establishing NATRiP centers

• 100 per cent FDI allowed under automatic route for auto component sector

• In January 2019, The Government of India lowered the custom duty on import of parts and components of electric vehicles to 10- 15 per cent.

Auto component manufacturers are afraid of the governments aggressive plans for_ electric vehicles, and it seems this transition is not in harmony with the future goals of the industry. Usually, an internal combustion engine (ICE) of most of the cars works on more than 2,000 moving parts, but the engine of an electric vehicle doesnt require more than 20 similar parts/components.

Familiar with the imminent shift, many SMEs in the_ auto components industry_are reluctant to invest in the electric vehicle expansion plans.

No doubt, an environment of fear is eclipsing the industry. But it is equally true that the industry is all set to become the third-largest in the world by 2025, and globalization is considered auspicious rather than a menace.

Despite this, a few of the industry players believe that the newer technology is apartheid to an age-old industry, which is still enjoying a growth momentum. They assume that once electric vehicles start replacing petrol/diesel based automobiles; there will be a sudden fall in the demand of auto components such as cylinder blocks, _lters, transmitters, plugs, etc.

Government Initiatives

The Government of Indias Automotive Mission Plan (AMP) 2006–2016 has come a long way in ensuring growth for the sector. Indian Automobile industry is expected to achieve a turnover of $300 billion by the year 2026 and will grow at a rate of CAGR 15 per cent from its current revenue of $74 billion.

The government has planned US$ 3.5 billion in incentives over a five-year period until 2026 under a revamped scheme to encourage production and export of clean technology vehicles. Initiatives like Make in India, the Automotive Mission Plan 2026, and NEMMP 2020 will be a net positive for the sector.

Government has come out with Automotive Mission Plan (AMP) 2016-26 which will help the automotive industry to grow and will benefit Indian economy in the following ways:

• Contribution of auto industry in the countrys GDP will rise to over 12 per cent

• Around 65 million incremental number of direct and indirect jobs will be created

• End of life Policy will be implemented for old vehicles


Following are the achievements of the government in the past four years:

• Production of two wheelers, passenger vehicles, commercial vehicles and three wheelers reached 21.03 million, 3.43 million, 0.75 million, and 1.13 million, respectively, in FY22.

• FAME - India Scheme formulated by Department of Heavy Industry, led to a continuous increase in registered OEMs and vehicle models. Also, the scheme enhanced the sales of EVs and about 261,507 electric/ hybrid vehicles were supported under the scheme up to December 6, 2018.

• Under National Automotive Testing and research and development (R&D) Infrastructure Project (NATRiP), various facilities including passive safety labs comprising of crash core facility and crash instrumentations including dummies were established at ICAT-Manesar and ARAI-Pune.

• To give a fresh thrust to E-mobility in public transport, Department of Heavy Industry announced the launch of public and shared mobility based on electric powertrain.

Road Ahead

The role of industry bodies and the government could be a critical differentiator in the recovery of the automotive sector. For instance, the government could enhance cost effectiveness in automotive manufacturing by reducing logistics and energy costs. Meanwhile, industry bodies could build on scale by working with Export Promotion Councils_ _ to expand Indias share in global exports. Sustaining the momentum on the ongoing policy shifts and investing in innovation could assure growth for the entire sector. While these have been testing times, the auto component industry could rebuild by catering to_ shifting mobility needs and consumer sentiment. Focusing on local manufacturing, investing in innovation and collaboration with the government and automotive industry bodies could ensure that the segment emerges stronger and more resilient, ready to _ourish_in the next normal.

The rapidly globalizing world is opening up newer avenues for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto-component manufacturers, who would need to adapt to the change via systematic research and development. As per Automobile Component Manufacturers Association (ACMA) forecasts, automobile component exports from India are expected to reach US$ 80 billion by 2026.

The Indian auto-components industry is set to become the third largest in the world by 2025. Indian auto-component makers are well positioned to benefit from the globalization of the sector as exports potential could be increased by up to US$ 30 billion by 2022.

Product Wise Performance

All products of the Company come under single primary business segment i.e. Shock Absorber. Its variants are Front Forks, Rear Cushions, Struts and Gas Spring/Rear Door Lifters etc. Therefore, requirement for analyzing segment-wise or product wise performance does not arise.


The auto component manufacturing industry in India is pegged at 3.5 lakh crore in FY 2018 and the industry is poised to grow 4 times by 2026. However, in the absence of a well-defined road map for the automobile industry, the future of the auto component segment looks bleak with disastrous consequences for many of the players. The industry will not witness growth if it continues to follow a business as usual scenario.

The possible transition of the automobile industry towards hybrids and electric vehicles will lead to disruption in the overall automotive market landscape which will also influence the product portfolios of auto component manufacturers. The alignment and the pace of this alignment to the anticipated new automotive landscape will be key for auto component manufacturers to stay relevant, survive disruption and grow over the next multiple years.

This alignment will see the rationalization of the product portfolio and even consolidation in different product segments in the auto component manufacturing pace. Recent move of Bosch to hive off its starter and generator division to SEG indicates that the company anticipates pressure on the legacy components in the realm of adoption of new technology and also regulatory push to embrace stringent emission norms in the mobility sector.

Thousands of auto component makers and aftermarket, players risk shutting down in the next 8-10 years as they are ill-prepared for a future where new and disruptive technologies like electric vehicles and autonomous or self-driving cars take over the roads. As new ideas and technologies in the automobile sector come to the fore every day, the $51 billion Indian auto component industry is waiting for the government or one of its agencies to draw up a detailed road map on the future of mobility. Unless there is some clarity on the automakers technology play in India and the development of the ecosystem that goes along with it through some well-defined policies and notifications, both the auto and component makers will continue to live in a state of uncertainty.

Nearly 50% of the domestic auto component players are either making engine parts or the transmission drive, which will have no place in an electric car, which runs on batteries. There is also a question mark on the kind of batteries that will ultimately survive; whether it will be lithium-ion or something else will depend mostly on the cost of the battery and its safety features.

The CAF norms and BSVI implementation will further push automobile companies to embrace technology that restricts emission and this will pave way for newer technology like ISG and BSG that are likely to replace alternator and generator in the automobile. The mandatory requirement to enhance safety features and premiumization of mass selling cars will also lead to the migration of electrical architecture from 12V to 48V.

Risks and Concerns

Risk, which is the manifestation of business uncertainty affecting corporate performance and prospects, is an integral part of business. The Company follows a well-defined and exhaustive risk management process, which is integrated with its operations. This enables the Company to identify, categorise and prioritise operational, financial and strategic business risks. To address the identified risks, the Company continues to spend significant time, effort and human resources to manage and mitigate such risks. The global pandemic caused by the corona virus comes at time when both the_ Indian economy_ and the automotive_ industry_ were hoping for recovery._ COVID-19 has impacted all stakeholders in the value chain who had experienced both short and medium term impact. This includes shortage of raw material, shifting of production to other countries, liquidity crunch to delays in availability of models, deferred launches and shrinkage in consumer demand.

The India automotive industry has already seen difficult past few quarters and this pandemic led lockdown couldnt have been more ill-timed. However, a planned and concerted response, both immediate and medium to long term will ensure a V shape recovery.

Imports share a significant share of our key inputs. This pandemic has led to disruption in supply chain management that may impact business goals of the Company. We have been engaged in exploring alternative vendors for key inputs and also focusing on exploring new opportunities in sales.

The Industry would need to focus on the following areas to be future-ready:

- Focus on R&D and Technology through M&As, JVs, and technical collaborations, both within component industry as well as software developers;

- Focus on addressing skill gap development through increased industry and academia interaction as well as investment in training and certifications;

- Inability to timely ramp-up production to meet market demand and planned growth;

- Loss of Customer Satisfaction and brand image due to quality issues;

- Supply Chain Disruptions;

- Rising fuel prices;

- Higher interest rates;

- Monsoon dependency.

The Company is taking all necessary measures in terms of mitigating the impact of challenges being resilient in order to sail through the current situation. It is focused on controlling the fixed costs, maintaining liquidity and closely monitoring the supply chain to ensure that the manufacturing facility operate smoothly. The Company has a well-established risk management policy and procedures based on which risks are identified and assessed across its business units and operations. To manage and mitigate the risks, mitigation plans are embedded in the various initiatives that the management hasalready executed. These plans are reviewed periodically by the Risk Management Committee of the Company. For better mitigation of Risk,the Company has made a Risk Management Committee. The Committee periodically reviews the concerned risks. The Company reviews the effectiveness of the mitigation strategies and their implementation process.

Internal Control System and its Adequacy

Your Company maintains adequate internal control systems commensurate with the nature of its business and size and complexity of its operations. The Company has implemented a SAP ERP (Enterprise Resource Planning) system. The financial authority at various management levels is clearly defined in the delegation of powers. These are regularly tested for their effectiveness by Statutory as well as Internal Auditors. In the highly networked IT environment of the Company, validation of IT Security receives focused attention from IT specialists and Statutory Auditors. Your Company has appointed reputed firm of Chartered Accountants for internal audit functions consisting of experienced and professionally qualified team. The Internal Auditor reports directly to the Board through Audit Committee. The internal auditor has covered the area of internal financial Controls, reconciliation of GST inputs, Checking of TDS compliances and GST compliances. The Audit Committee reviews the adequacy and effectiveness of the Companys internal control environment and monitors the implementation of audit recommendations.

Discussion on financial performance with respect to operational performance

The Companys Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 ("the Act") with respect to the preparation of these Ind AS financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the Indian Accounting Standards (Ind AS) prescribed under Section 133 of the Act read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, and other accounting principles generally accepted in India. The financials have been prepared considering the above requirements of applicable laws.

The Company has achieved turnover (net of GST) of 1,24,053.90 as against 1,05,994.62 lakhs during the previous year. The profit before tax was 4,218.77 lakhs as against 1,387.61 lakhs of previous year. The increase in profit before tax was 204.03 percent and profit after tax was increase by 162.57 percent at 3,184.93 as against 1,398.99 lakhs in the previous year.

Key financial Ratios:

Ratio 2022-23 2021-22 Change %
Net capital turnover Ratio 3.13 2.72 0.41
Net profit Ratio 0.03 0.01 0.02
Return on capital employed 6.02 2.18 3.84
Debtor Turnover Ratio 6.82 5.78 1.04
Inventory Turnover Ratio 16.97 13.19 3.78
Interest Coverage Ratio 0.00 0.00 0.00
Current Ratio 3.76 3.76 0.00
Debt to Equity Ratio 0.00 0.00 0.00
Return on Equity Ratio 0.05 0.02 .03
Trade payables turnover Ratio 7.99 6.72 1.27

Material Development in Human Resources/ Industrial Relations, including number of people employed

The strategic purpose of Human Resources is to be a catalyst and change agent for creating the Human Capital transformation required to ensure sustained business outperformance, while simultaneously addressing the needs of its multiple stakeholders (starting with customers and employees) and strengthening the core values of the Company. In the long run, the ultimate metric for success is continuous improvement in the total factor productivity, while addressing the business imperatives of cash, cost, competence and confidence. The emphasis has been on aligning all the HR levers towards achieving these goals. Focus continued to be on the Talent Management and Leadership Development processes which included Development Centers, Individual Development Planning, e-learning, up-skilling programs, Leadership Lifecycle programs and Action-Learning Projects etc.

The Companys strength of employees stood at 2412 as on March 31, 2023.

Cautionary Statement

Certain statements in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the markets, exchange rate variations, global economic, social & demographic factors, changes in Government regulations, tax regimes, economic developments within India and the countries in which the Company conducts business and other incidental factors.

For and on behalf of the Board
Yogesh Chander Munjal Vinod Kumar Agrawal
Place: Gurugram (Chairman& Managing Director) (Director)
Date: May 30, 2023 (DIN 00003491) (DIN 00004463)