Wheels India Ltd Management Discussions

Financial year 2022-23 was unprecedented primarily from the geopolitical tensions that emanated from Russias invasion of Ukraine and the strained ties between the US and China. These geopolitical tensions pose the most significant risks to the global economy in 2023 and beyond. Russias invasion of Ukraine has rapidly inflated energy and food prices, leading to cost issues for businesses and soaring living costs for consumers in 2022-23. The prevailing inflation in most economies is at a very high level and the central banks of major economies, led by the Federal Reserve of the US, are fighting inflation through rate hikes. The Federal Reserve issued the 10^th consecutive rate hike in May 23, since Mar 22 despite the stress on the banking sector.

The global economic growth is projected to fall from 3.4% in 2022 to 2.8 % in 2023. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023. There is uncertainty around the effect of EL Nino on the global agricultural output in the coming year. There is expected to be only a marginal drop in headline inflation that will remain above the target inflation levels in the coming year. On the positive side, the covid-19 pandemic had little impact on economies in 2022-23 and travel and commerce returned to normalcy.

Indias GDP growth for 2023-24 is estimated to be around 6.5% with the contact-intensive service sector and exports expected to grow faster. The country should also benefit from a higher infrastructural capital expenditure planned by the government as this will have a multiplier effect on GDP.

The Indian commercial vehicle market has grown by a third in 2022-23, on top of strong growth in 2021-22 from the lows of the pandemic year. The governments infrastructure drive, higher utilization of fleets driven by the growth of the economy and replacement demand grew the commercial vehicle market. In the last two years as the commercial vehicle industry has rebounded, there has also been a structural shift within sub-segments of the commercial vehicle market in response to load rating changes that happened prior to the pandemic and higher horsepower in some segments. It is expected that the commercial vehicle sector will show moderate growth in the coming year, off a higher base. The demand for buses that was badly affected in the pandemic period showed strong growth in the latter half of 2022-23. The bus segment is expected to remain strong in the coming year, particularly in school/office transport. Your company should benefit from better capacity utilizations at its plants for both wheels and air suspension systems.

The passenger vehicle segment showed strong growth in 2022-23, surpassing pre-pandemic levels, on the back of strong domestic demand and easing of semiconductor supply issues. The year saw continuing growth of the sports utility vehicle segment. There is also increasing exports of passenger vehicles from India, in addition to domestic demand. This trend resulted in cast aluminum wheel fitment in the Indian passenger vehicle industry crossing 40% towards the end of the year. It is expected that the Indian passenger vehicle industry will show moderate growth in the coming year. Your company will start supplying cast aluminum wheels to vehicle manufacturers in India in the coming year. Companys subsidiary WIL Car Wheels Limited, a JV with Topy Industries (Japan) will continue to service the steel wheel requirements of the Indian passenger vehicle market.

Your company has been able to grow its domestic aftermarket notably in the car and commercial vehicle segment to closer to 5% of overall sales.

The agricultural tractor segment in India, driven by another year of normal monsoons, reasonable water levels at reservoirs and higher prices for agricultural commodities, grew by 11% to reach record levels in 2022-23. It is expected that there will be moderate growth in the coming year subject to a normal monsoon. In addition to the domestic market, your Company is working on growing its business in international markets with global tractor manufacturers.

Your companys construction equipment business benefited from a 25% growth in the Indian construction equipment industry that benefited from the governments infrastructure spend. Your company supplies wheels and fabricated structures to this industry. Your company is a major supplier of construction equipment wheels to international markets. In the last year, your company has been able to win new business and grow business with international customers. The coming year will continue to see growth albeit at more moderate levels.

The windmill industry was severely impacted by the geopolitical tensions and supply chain issues that limited growth in 2022-23. However, the geopolitics, climate change and the energy crisis has made governments focus more on renewable power. Your companys windmill component business was adversely affected by a requirement of one of its customer for pre-delivery inspection and rectification at the customers site necessary to align with customers inspection standards. While the coming year will only see a moderate growth in onshore windmill installations, there is expected to be strong growth in the offshore windmill market in the coming years. In addition to existing business in windmill components, your Company started production at a new plant in Thervoy Kandigai for machining of large castings in the middle of the year. This business is expected to grow and be profitable in the coming year.

Your companys export turnover marginally declined from the levels of 2021-22, partly due to issues at the windmill component division and temporary destocking by the US distributor of forged and cast aluminum wheels. Despite the slowdown expected in advanced economies, your Company expects to grow its exports, based on a return to normalcy in these markets and the inroads, your Company is making in the construction and agricultural tractor wheel markets globally.

Your Companys subsidiary WIL Car Wheels Ltd. had a difficult year, last year, due to inventories and material cost under-recoveries. It is expected that the performance should improve in the coming year based on increased volumes indicated by customers.

The year under review saw a decline in the profits of the Company due to underutilization of capacities in some export business and higher interest costs due to rates and revenue growth. We expect higher capacity utilizations in some of these businesses and working capital optimization to improve profitability in the coming year.

I would like to thank all stakeholders for their patience and support to the company through this difficult period.