ZF Commercial Vehicle Control System India Ltd Management Discussions

The Company has the capability to shape the future of commercial transportation systems. Our technologies and services for commercial vehicles and fleets make them more efficient, safe, connected, intelligent, and automated wherever they operate. We partner with customers to introduce, integrated and innovative solutions that positively impact the commercial vehicles lifecycle, from cradle to grave.

We offer our customers access to a wide range of commercial vehicle solutions in key domains like Automated

Driving, Electric Mobility, Shared Transportation and Fleet Operations Digitalization to enable Next Generation Mobility. Our teams and partners are established across the country at close customer proximity, wherever they are.

Our technologies help commercial vehicles to ‘see, think and act. We enable real-time communication between trucks and trailers. The company knows the requirements for e-CVs and our data pool from onboard systems enables real-time information and insights to optimize fleet operations.

I Industry Structure and Development: i. GDP growth and Indian economic outlook:

The Governments thrust on capital expenditure coupled with initiatives such as the Production-Linked Incentive (PLI) scheme should bolster private investment activity, amidst improving capacity utilization, de-leveraging corporate balance sheets, higher offtake of bank credit, and congenial financial conditions. At the same time, the escalation of the geopolitical situation and the accompanying surge in international crude oil and other commodity prices, tightening of global financial conditions, the persistence of supply-side disruptions, and significantly weaker external demand pose downside risks.

The Purchase Managers Index manufacturing index was at 59.1 in March 2024 as compared to 56.4 in March 2023. Based on data provided by the NSO, on the supply side, real gross value added (GVA) was at 6.9 percent in 2023-2024, with its major components, including services, exceeding pre-pandemic levels across sectors. Agriculture has remained the silver lining while contract-based services, manufacturing and construction were hit the hardest, and have been recovering steadily. Government consumption and net exports have further provided support in the recovery. The Government has announced several fiscal measures to incentivize capital formation attract foreign investment and create employment with the Reserve Bank of India stepping in to provide adequate liquidity.

National Statistical Office (NSO) placed Indias real gross domestic product (GDP) growth at 7.6 percent in 2023-24 considering that private consumption and public investment were the major drivers of growth. The Governments thrust on capital expenditure, capacity utilization in manufacturing, double-digit credit growth, and the moderation in commodity prices are expected to bolster manufacturing and investment activity. According to RBIs surveys, businesses and consumers are optimistic about the outlook. The external demand drag could accentuate, given slowing global trade and output. Protracted geopolitical tensions, tight global financial conditions, and global financial market volatility pose risks to the outlook. Considering all these factors, real GDP growth for 2024-25 is projected at 6.8 percent.

ii. Indian Commercial Vehicle Industry:

Against the backdrop of a sturdy 7.6% economic expansion and a 12.5% surge in the Indian automobile industry, the commercial vehicle (CV) sector experienced a modest growth of 0.6% in FY 2024.

In the short-term, auto sales may face a slow down due to ongoing elections and the pent-up demand expected to take off post-election. However, the long-term outlook for the market remains optimistic.

Some of the trends that will drive the demand for commercial vehicles.

? e-Commerce will be a key driver for retail sales and it is expected that about 25% of new sales will come through online channels (e-Commerce is expected to grow at a CAGR of 27% to reach US$ 163 billion by 2026). ? With CVs integrating telematics and fleet management system opting for better tracking maintenance and efficiency, the Connectivity and digitalization will open new opportunities and avenues for the industry.

? New business models such as freight aggregators will create demand for commercial vehicles.

? Government incentives for Vehicle Scrappage, Green policies and Government tenders are encouraging replacement of older, polluting vehicles.

A well-thought-out vehicle scrappage policy with incentives will spur demand for commercial vehicles in the short term. The adoption of digital connectivity solutions will make fleets more efficient and cost-effective.

Phase II of FAME scheme (Faster Adoption and

Manufacturing of Electric Vehicles Scheme) ended on 31^st March 2024, Phase III of FAME is expected to start off from

July 2024 and Government tenders have led to an increase in the adoption of electric buses in the country. Right policies and intervention from the Government to support

State Transport Undertakings in procuring alternate fuel buses like CNG, biofuel, electric FCEV, H-ICE, etc., would also lead to a revival of demand for commercial vehicles.

With more structural reforms underway, in a stable economic environment with digital technology, the market is expected to regain the growth. Market forecast points to an increase in the sale of light and intermediate commercial vehicles, with demand for high-tonnage trucks rising in FY 2024. The production cycle will surge in the coming years owing to export markets seeking budget trucks that are compliant with global emission standards and quality norms.

Some of the key technologies that will drive future trends include:

? Alternate fuel systems

? Electric vehicles and EV retrofits

? Higher horsepower engines with electronic diesel-controlled system

? Auxiliary braking systems like electromagnetic retarders, hydraulic retarders, and intarder in automatic transmission

? Speed monitoring and control systems ? Vehicle payload monitoring systems

? eSIM-enabled vehicles, GPRS, and GPS-related technologies

? Vehicle alarm systems to detect irregular driving patterns.

? Infotainment systems, IT-enabled navigation, vehicle tracking, vehicle productivity analysis

? Advanced transmissions with electronic integrations such as automated manual transmission and other new technologies

? Electronic braking system (EBS)

? Advanced Driver Assistance System (ADAS)

? Collision avoidance warning system ? Lane departure warning systems

? Air suspensions for bus, trucks, and trailers

The commercial vehicle industry is likely to sustain this growth for the next two to three years. Demand for commercial vehicles, particularly medium and heavy commercial vehicles, is likely to benefit from various

Government initiatives to help revive the economy.

II Opportunities and Threats

With Phase 2 of BS VI RDE (Real Driving Emission norms) effective from 1st April 2023, the auto industry took a significant step in the right direction by harmonizing and coming on par with emission norms in the European and American markets. Stricter safety norms provide the

Company with an unique opportunity to work closely with

OEMs to penetrate the Indian market and introduce new technologies for the benefit of the end customers. With the recent implementation of ESC in buses, the Company worked with the OEMs and launched ESC with many customers.

The Indian Government and private sector are collaborating to accelerate EV adoption in the Commercial Vehicle (CV) segment.

On the private side, manufacturers are developing a wider range of electric CV models to cater to different needs. The emphasis is on improving battery range, reducing charging times, and lowering operational costs to make electric CVs more competitive. Collaboration between energy companies and fleet operators is also fast emerging to address charging infrastructure challenges. This combined push, both from Government and private players, holds the promise for increasing EV penetration in the Indian CV market. The Company worked together with the OEMs and launched e-mobility products like electric compressors and electronic braking system successfully across all the major EV players.

With improvement in infrastructure and express highways, the need for higher capacity engines and higher gear ratio transmission increases which opens opportunities for automated manual transmission controls in heavy duty segment.

During the year, the Company took efforts to sustain and increase revenues through the introduction of new products for OEMs, increase in vehicle content, better technology penetration, and foraying into new domains for commercial vehicle technology.

The Company also worked with OEMs as a technological solutions partner to introduce technologies compliant with

BS VI norms like Hill Start Aid (HSA), Automatic Traction Control (ATC), Air Disc Brakes (ADB), Electronic Stability

Control (ESC), Automated Manual Transmission (AMT), Fleet Management Solutions (FMS), Tire Pressure Monitoring System (TPMS), and Advanced Air Processing Units among other technologies.

The company also introduced numerous products through the aftermarket channel to enhance the safety and efficiency of fleets including air suspension with ECAS technology, Tandem Master Cylinder, and Clutch Master Cylinders. The Company also increased its market share for Diesel Exhaust Fluid (DEF). The Company looks forward to the following strategic opportunities in the coming years.

? Partner with trailer customers for implementing 100% TABS, penetrating and expansion of Intelligent Trailer

Program products and Air Disc Brakes for trailers. ? Technical / homologation support for advanced technology products.

? Leverage / expand its manufacturing footprint to ensure increased customer centricity.

? Penetration road map for newer technologies like

Advanced Driver Assistance Systems (ADAS), Reverse Parking Assistance System (RPAS), Driver Behaviour Monitoring System (DBMS).

? Introduction of new product portfolio - Doors with Door Control System, Air Suspension Systems, Air Disc Brakes among others.

Anticipating evolutionary changes in the traditional aftermarket business models, the Company is striving to introduce new business and revenue models through e-Commerce. The Company is also looking to ramp up its sales, service, and distribution networks to effectively cater to fleets and mobility users across the country. The authorized service centre network is also expanding and currently, the Company has around 700 service centres and channel partner points with a pan-India presence to cater to customer requirements. These initiatives have resulted in improved service practices, availability of genuine parts, and generated additional revenue for the Company.

III Risks and Concerns

The Company has cash reserves to meet its obligations and does not foresee a need to borrow or raise capital. The

Company has a strong credit management process and investment vetting processes. The Company has met all its financial obligations and would continue to do so. The

Company is receiving all major dues from its customers albeit with minor delays and company has been accepting payments through arrangements with the banks.

The Company has a robust ERP system in place and all its locations are well networked. All reporting systems work seamlessly without any disruption and ensuring adequate controls. Apart from the above, the cyclical nature of the

Indian commercial vehicle industry presents its own risk to the business.

Steel

The World Steel Association (worldsteel) has released its Short-Range Outlook (SRO) steel demand forecast for 2024 and 2025. Worldsteel forecasts that, this year demand will see a 1.7% rebound to reach 1,793 Mt. Steel demand is forecasted to grow by 1.2% in 2025 to reach 1,815 Mt.

The global economy continues to show resilience despite facing several strong headwinds, the lingering impact from the pandemic and Russias invasion of Ukraine, current middle east conflict, high inflation and falling household purchasing power, rising geopolitical uncertainties, and forceful monetary tightening. As the end of this monetary tightening cycle is nearing, it is observed that tighter credit conditions and higher costs have led to a sharp slowdown in housing activity in most major markets and have hampered manufacturing sector globally. While it seems the world economy will experience a soft landing from this monetary tightening cycle, it is expected that the global steel demand growth will remain weak and market volatility will remain high on lagged impact of monetary tightening, high costs and high geopolitical uncertainties."

Our projections for the world, excluding China, suggest a broad-based growth in steel demand at a relatively strong level of 3.5% per annum over 2024-25.

? India has emerged as the strongest driver of steel demand growth since 2021, and our projections suggest

Indian steel demand will continue to charge ahead with

8% growth in its steel demand over 2024 and 2025, driven by continued growth in all steel using sectors and especially bolstered by continued strong growth in infrastructure investments. In 2025, steel demand in India is projected to be almost 70 million tonnes higher than in 2020.

? Emerging parts of the world such as MENA and ASEAN are expected to show accelerating growth in their steel demand over 2024-2025 after a significant slowdown in 2022-2023. ? The developed world is also expected to show a strengthening recovery with 1.3% in 2024 and 2.7% in 2025, as we expect to see steel demand finally showing a meaningful pick up in the European Union in 2025 and continued resilience in the US, Japan, and Korea.

Steel using sector trends.

It is observed that a residential construction downturn driven by high interest rates and high construction costs have dragged down steel demand across most major steel using regions.

In 2023 we saw sharp drops in housing activity in the US, China, Japan and the EU, and weakness in housing activity is expected to stretch well into 2024 in most major markets on the lagged impact of monetary tightening. A meaningful recovery in residential construction is expected to begin only from 2025 onwards.

Weakness in global manufacturing activity on high costs and uncertainties, tight financing conditions and weak global demand also hampered global steel demand in 2023. Leading indicators suggest the start of a recovery in global manufacturing activity in 2024. Automotive was the notable exception to overall weakness in manufacturing, as the sector finally showed the long-awaited strong recovery in 2023 on pent-up demand and easing supply chain constraints. Following a year of strong double-digit growth in all major auto producing countries, we expect to see the sector showing weak growth at best in 2024 in most of them.

Strong investment activity in manufacturing facilities and public infrastructure have underpinned global steel demand in 2023. Investment in manufacturing facilities is driven by the ambition in major economies to develop strategic sectors and ensure supply security for critical components and materials against a backdrop of increasing geopolitical tensions. We believe that the green transition of the world economy, which requires an economic transformation of unprecedented magnitude and scope, is one of the major factors behind the strength in public infrastructure investments.

Supply

? World crude steel production has declined across all regions over the first five months of the year, with India being a notable exception.

? Steel production in the United States declined 2% YoY through May, largely reflecting production cuts at sheet mills amid a weak demand from the automotive sectors.

Demand

? Key steel consuming markets are facing increasing headwinds over the second half of the year, especially in mainland China, which accounts for more than 50% of global steel consumption.

? The near-term steel demand outlook has also softened considerably in Europe as energy prices soar and shortages loom.

? In the United States, inflation and interest rate increases continue to surprise on the upside, weighing on steel demand expectations for the second half of the year and 2023.

A. In March 2024, HR Steel prices varied between C 53,375 - C 54,750 per tonne.

B. Prices in March 2024 were about 13% lower than last year, 3% lower than the previous month, and 13% lower than the peak witnessed in the last 12 months.

Base metals prices started relatively weak this year, with London Metal Exchange prices generally lower in January as compared to the previous month. This is a direct effect of global macroeconomic and geopolitical uncertainties. However, towards the end of January the negative mood receded with the prospect of lower interest rates from the US Federal Reserve Bank (which could boost market liquidity) and monetary policy injections in China both supporting base metals prices in the second half of the year.

Consequences of a Russian aluminium ban

UKs recent round of sanctions, which prohibited British citizens and companies from trading certain Russian metals, led to a spike in aluminium stocks of Russian origin. According to the LMEs Country of Origin reports, Russian primary aluminium stocks more than doubled in December. In view of a draw-down in Indian-origin aluminium, Russian stocks accounted for 90.4% of total LME aluminium inventories at the end of 2023, which was a new record high.

According to European Aluminium (EA), only 12% of Russian aluminium imports have so far been affected by EU sanctions. By contrast, the US has imposed a punitive 200% tariff on Russian aluminium and aluminium products. At the end of last year, UK decided to ban trade in Russian metals, including aluminium.

Due to high energy and labour costs, aluminium production in the EU is in steady decline and now accounts for only about 11% of its total demand. This, coupled with an expected complete ban on Russian aluminium by the European Union and a ban by the LME too will inevitably boost the aluminium price in the short term as soon as the ban is imposed. Later this year the market could stabilise, but the LME price would not reflect the real demand/supply situation. Instead, Russian aluminium will then flow to the Asian markets (especially to China) at discounted prices, so that there will be no deficit in the supply of aluminium.

The aluminium price will be more balanced and regulated by premiums, as the all-in price (LME plus premium) is more relevant than just the LME price for traders.

Virgin Aluminium

A. In March 2024, Virgin Aluminiums price on average was $ 2,222.40 a tonne.

B. Prices in March 2024 were about 3% lower than last year, 2% higher than the previous month and 5% lower than the peak witnessed in April 2023.

C. Automotive production uses 21% of aluminium. The latest data of two-wheeler production rose by 9.57% (vs.10.15% last year), three-wheelers grew by 16.95% (vs.13.43% last year), and passenger vehicle production grew by 6.93% (vs. 27.6% last year).

D. Year-to-date, Aluminium bars, rods, billets and ingots tracked as the proxy for aluminium production increased by 2.22%, compared to the 7.39% growth observed last year.

Enterprise Risk Management:

The Company has formulated a detailed risk management policy and adopted an integrated ERM framework as aligned with the ZF Group and it is implemented across the Company. ERM Framework is developed by incorporating the best practices based on COSO and ISO 31000 and then tailored to suit our unique business requirements and laid down procedures for enterprise risk assessment and mitigation actions. The Board has constituted a Risk Management Committee to review the aspects of risk management periodically, to ensure that Executive

Management reviews and controls risk through means of a properly defined framework. Risks measures are periodically checked by the internal audit team and are communicated to the Board of Directors.

During the year 2023-24, the Company had a very detailed road map including the creation of risk awareness, adopting the ISO standards in managing and monitoring the risks, and a detailed presentation was made to the risk management committee about current risk mitigation and future risk mitigation actions with timelines and accountable risk owner.

IV Internal control systems and their adequacy:

The Company has proper and adequate systems of internal control including internal financial controls for financial reporting to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition thereof and ensure accurate reporting. All transactions are authorized, recorded, and reported correctly. The internal controls are checked by internal auditors. Observations made by them, management actions, and time frames are reviewed.

V Operations review

A. Manufacturing

During the year 2023-24, the Company had inaugurated a new state-of-the-art multi-divisional manufacturing plant at Oragadam, aligned with its growth strategy of manufacturing advanced technology products for Indian and global customers. New manufacturing lines for next generation e-Mobility products were commissioned in this plant to produce Hydraulic ESCs and e-Compressors for Tata Motors, VOLVO, Switch mobility, Pinnacle and Propel. This plant also manufactures ASP Cartridges to support localization programs.

Manufacturing capacities were scaled up for export of Single and Twin Cylinder Compressors and Air Supply Units to Europe and Braking System products for domestic market to capitalize growth opportunities. New assembly lines were established in our Jamshedpur and Lucknow plants for its manufacturing footprint strategy of producing close to key customer locations. New products such as Twin cylinder Compressor and Air Supply Units for European customers, Actuators, Steering angle sensors, APUs and ECUs to Indian OEMs were successfully launched. gains in Productivity and Quality were realized through implementation of Smart Automation Robotic technologies,

Testing Automation and leveraging Digitalisation inand mitigation assembly and machining cells. Disclosures were continued to be filed within the group for indigenously developed process inventions leveraging lean and frugal engineering capabilities.

The Company has synchronised its planning cycle using the S&OP framework, with an effective process in ERP, and has implemented a safety stock management process to meet demand uncertainty in the short term as a part of the Companys footprint strategy and moving lines closer to customer. This is improving our agility in responding to short term demand changes and supporting the sustainability targets by reducing transport and carbon footprint. Keeping in mind the sustainability targets, the Company has further invested in additional returnable pallets. We are now a step closer to eliminating expendable packaging usage for OE customers (over 90% of our domestic OE business operates on returnable pallets). These measures have also helped to reduce our packing and freight costs by over 9% from the previous years. As a new initiative at the Oragadam plant, GRN process, material issue was automated through handheld RF devices eliminating keyboards. SAP standard Warehouse management has also been implemented in the Oragadam plant. BOM creation and change was automated from PLM to SAP to avoid manual interventions.

Value stream Analysis has been conducted for all critical product lines every 6 months to support material flow improvement. All sites have been assessed with Six Lean Lever Evaluation to improve Lean Maturity and drive Continuous Improvement Savings. Also, the Company had realized space productivity of 500 sqm during the year.

As part of sustainability initiatives, the energy efficiency program was rolled out involving all stakeholders in the operations as well as in other areas where 14% energy reduction resulted by implementing 89 projects across the sites.

Renewable energy: We have secured 5 MW of solar power/capacity? through Group Captive Model which supports approx. 70 Lakh units per annum. We have also purchased 4 MW of solar power and 6 MWh of wind energy from third parties contributing renewable energy coverage of 55% for the Company. The Company has realised 4% savings in water - 4320 KL/annum through water conservation projects carried out at Ambattur and Jamshedpur. Also, as an initiative to eliminate landfill, the hazardous waste from Ambattur plant is sent to cement industry for co-processing; and the company is poised to implement the same across all its manufacturing facilities.

Total Employee Involvement (TEI) is the key pillar that engages employees across all sites and functions of the

Company. In 2023, we won a total of 58 external awards in all competitions. Among these there were 12 at the National level, 10 at the regional level, and 36 at the State level conducted by CII, ACMA, QCFI, and others. Some of the significant awards include: the gold award for Ambattur plant in The Responsible Manufacturer (TRM) assessment and the Platinum Awards for the team from Ambattur in CII National level EHS Circle Competition. There was also a Platinum Award for the team from Ambattur in CII National level Low-Cost Automation competition and the First Prize for team Jamshedpur in the National Kaizen competition organized by ACMA.

B. Quality

The ideology of quality: ZF DNA of Quality - I am living in a zero-defect environment.

The Companys quality systems are dedicated to achieving total customer satisfaction by enhancing product quality and adhering to global standards. This involves inculcation of the ZF DNA of Quality in GEMBA and fostering a culture shift among employees toward achieving zero PPM. Despite maintaining a 14 PPM rate in the fiscal year 2023-24, customers expect Zero PPM, zero field failures up to 1 lakh KM, and no unplanned dealer visits. Additionally, the Company aims for zero defect performance and a zero-tolerance for deviations.

Total Quality Management is deeply ingrained in the

Companys culture, with total employee participation in involvement initiatives over the past two decades.

Employees across all the plants were involved and have completed 266 quality control circle projects, 201 supervisory improvement team projects, and cross-functional team projects by applying statistical tools, including Six Sigma (DMAIC and DMADV) and Quick

Response Quality Control (QRQC) methodology during the year. Over 83262 suggestions have been implemented by all employees throughout all the plants, including trainees. Employee suggestion scheme is in force at all plants and employees implement suggestions under productivity, quality, cost, delivery, safety, and morale categories.

Implementing "VDA6.3" and "VDA6.5" process and product requirements, in conjunction with product safety standards and IATF 16949, has significantly reduced defects. Both project quality and product engineering quality have achieved 100% customer PPAP "First Time Right" for critical launches, ensuring a flawless launch. toward enhancing product quality have led to improved reliability and reduced warranty claims, facilitated by data-driven decision-making processes enabled by AI and ML algorithms.

Quality control circle, cross-functional teams of employees participated in external competitions conducted by industry bodies, Automotive Component Manufacturers Association (ACMA), Confederation of Indian Industry (CII), National Institution for Quality and Reliability (NIQR), Indian Machine Tool Manufacturers Association (IMTMA), Quality Circle Forum of India (QCFI), Indian National Suggestions Schemes Association (INSSAN) and have won various prizes demonstrating their passion and innovation in various areas of excellence in quality & manufacturing which are given below

We have won the following customer awards,

1. CVS Mahindra city won the PACCAR 10 PPM award for the year of 2022.

2. CVS Jamshedpur won the ZF DNA of Quality award at the divisional level for 2023.

3. CVS Mahindra city won the Winner Award in Problem solving contest conducted at CVS divisional level.

4. CVS Ambattur team won the Runner up award in Ashok Leyland Regional Supplier Samrat.

5. CVS Lucknow won the 1st prize for best poka-yoke controls in Tata motors competition.

6. CVS Ambattur Team won the 1st Prize in DICV Kaizania competition out of 96 suppliers.

7. CVS Ambattur won the Runner up award under the Best supplier category by JBM Group.

8. CVS Jamshedpur team won the winner award for best L3 controls in Tata Motors Quality.

The team has secured several awards from external competitions which were conducted by various industry bodies.

1. CVS Ambattur Quality Team won the platinum award in the 18th National Six Sigma competition.

2. CVS Ambattur team won the platinum award in QCFI problem solving competition.

3. CVS Ambattur & CVS Mahindra city teams won Gold Award in the 11th QCFI poka-yoke competition.

4. CVS Lucknow team won the awards in excellence and consolation category respectively in 37th NCQC competition.

5. CVS Ambattur Quality team won the Runner up award in the 7th ACMA Regional poka-yoke competition.

6. CVS Lucknow & pant Nagar Teams won Gold & Silver awards in QCFI competition.

7. CVS JSR Team Won Runner up in 5Th Regional Quiz Competition organized by ACMA Eastern Region.

C. Cost management

The Company continues its focus on upgrading the robustness of cost control mechanisms and capabilities in all activities, especially procurement, operational expenses, and manufacturing. The Company realizes that better cost management is the key differentiating factor in this competitive environment. The prime strategies are value creation through design improvement, localization of inputs and products and conversion cost productivity.

Cross-functional teams are formed with members from various functions like product engineering, manufacturing & sourcing to focus on identified cost-reduction projects. The Company continues to find the best cost suppliers across continents leveraging the global platform in an endeavour to become the best cost supplier to our customers. A key focus area is process improvement through technical collaboration with leading suppliers to continuously keep the costs at optimal levels.

D. Information Technology

The Company continues to focus on Data Privacy, Cyber Security, Digital Transformation through AI & Advanced Analytics solutions, and Digital Manufacturing platform & process automation in-line with the Global Framework and

Policies of the Company.

ZF Group focusses towards being a technology platform provider for the Digital Core with 7x24 Cyber Security, Workplace, Cloud, Data & AI and being a "Data to Value" team player to co-create & co-decide with the business for continuous delivery & incremental Value Creation.

The solutions and ideas for digitalisation are registered & tracked on a Continuous Improvement platform and are prioritized based on the quantified business benefits.

AI/Advanced Analytics:

ZF Group is focussed on implementation of data & AI solutions, enabling data-driven decision making & driving data excellence with a vision to have AI as part of software running products and processes. The ZF Global AI Centre of Excellence is setup to bring in cohesion on topics regarding organization, people, technology, and ecosystem related to Data & AI and implement AI Standards, processes, organizational structures, and policies. Multiple AI based solutions are being evaluated in the areas of prediction algorithms, production optimisation, preventive maintenance, Video analytics & Computer Vision technologies etc.

Digital Manufacturing Platform (DMP):

The company is in the process of adopting the ZFs Cloud based Digital Manufacturing Platform (DMP), which is an Industrial IoT/Cloud based platform that acts as the central enabler to realize one global production network through digital solutions that enables manufacturing plants achieve higher flexibility, productivity, and efficiency.

The DMP enables to create transparency of production performance from the plant as well as down to machine level & enhancing maintenance operations through machine condition/energy monitoring and fault prediction.

DMP roadmap for the company is in place with two manufacturing plants already kicked-off & other plants to get onboarded into DMP in the next 2-3 years.

Citizen Development:

The Company leverages on the Global ZF IT Citizen Developer initiatives that enables Business and IT, to create digital solutions by themselves using a low code platform. The low code/no code platform helps business teams. Many business users have been trained on the Citizen developer and Citizen Data Scientist platforms to enable them to create custom business applications, automate workflows & analyse data on their own.

ERP:

In alignment with the companys strategic transformation towards becoming a digital, data-driven enterprise with optimized processes, Next-Generation ERP solution is being discussed and evaluated that leverages cutting-edge technology on SAPs S/4HANA platform.

Cyber Security & Data Privacy:

ZF Global Enterprise IT Security is focused on the

Operational Enterprise IT-Security by Prevention, Detection and Defending/Mitigation of Cyber Risks. ZF Corporate & IT Security is constantly improving the Security Policies, Cyber capabilities, tools, and processes by Protection of the entire IT infrastructure (global network, cloud, servers, endpoints...), the Company has in place a 24x7 Security Operations Centre (SOC) that globally monitors the environment for security conditions, alarms, health of the security platform, and responding through the organizations various technical solutions. The SOC performs various activities including monitoring, incident response, malware analysis, threat hunting etc.,

IT & Corporate Security teams perform pen-tests and attacks with internal ethical hacker teams. Internally simulated phishing attacks are conducted periodically along with regular awareness sessions to all employees on the

Dos & Donts best practices.

ZF Corporate Security team also supports TISAX (Trusted Information Security Assessment Exchange) assessment and certification of individual facilities/plants based on business needs and customer requests. One of the factories of the Company is currently undergoing TISAX assessment.

New Data Privacy policy is rolled out that covers the responsibilities and the data privacy principles, which are based on the GDPR. Pilots are already in progress on solutions towards Data Loss Prevention (DLP) solutions and blocking access to removable storage devices. Azure

Information Protection (AIP) is setup to classify and protect documents and e-mails. Secure Mail Encryption is made available to encrypt confidential e-mails.

VI Human Resource Development

Companys growth story in India has seen a major milestone of expanding its business by opening a new manufacturing location, ZF Industrial Park in Oragadam, near Chennai on 14th Feb 2024. This factory will set a benchmark to our Diversity strategy focusing on inducting 80% diversity ratio. FY 2024 has been the year of transition and harmonization of policies with the region. Notable policies such as deputation policy, new joiners relocation policy, permanent transfer policy, Internal job posting policy for internal talent mobility etc., has been rolled out for the division. The top priority for the Human Resources function is employee retention, and engagement initiatives like employee wellbeing programs and improving the employee experience with benchmark strategies, opening the right communication channels, tools promoting hybrid working, and smooth functioning of plant operations protecting customer interests.

Hello ZF Team! - A Global Employee Engagement survey was launched during April 2023 to be able to regularly measure employee engagement within whole company and to enable continuous improvement of working environment based on employees feedback. The goal of the survey is to understand the factors driving employee engagement and to leverage insights gained by taking relevant and impactful actions that will support colleagues to do their best work. For employees, it is an opportunity to be heard and for managers, an opportunity to identify issues they may not have been aware of and to take actions to improve. The Company scored an engagement index of 79 which is above the global benchmark score of 75 with a response rate of 93% which shows active participation from employees to provide candid feedback.

The Company hired over 416 employees across all sites during this period to meet the HC growth for the Company. On the campus hiring, we have inducted 45 fresh engineers from campus as part of our Campus2Corporate program with 48% diversity onboard. The current average recruitment lead time of the lateral talent is around 35 days. The Company successfully blends mid-career recruitments with internally grown talent through a robust globally managed talent management process. Based on our continuous intervention on talent retention, the Company had maintained the attrition at 6.7% level which is a benchmark in similar industries.

Programs like virtual learning sessions, women employees connect, family & kids engagement, health & wellbeing sessions, and engineering quiz competitions were some of the virtual programs conducted which were well received by the employees.

As part of ZFs Diversity, Equity & Inclusion strategy, HR division has prioritized the initiative and had attracted diverse talents at our sites and will have a progressive increase in giving opportunities to promote under represented groups and ensure inclusion in its processes and systems.

As part of the collective bargaining process, our plant at Jamshedpur and Lucknow has signed a long-term wage settlement valid for 4 years from April 2023 onwards with our union associates. The year saw positive and cordial Industrial Relations at all the Companies sites thus maintaining a healthy Industrial Relations climate.

As of 31st March 2024, the Company had 2350 employees on its rolls.

VII Environment, Health & Safety

Every year, the first quarter is focused on EHS themes. This year we focussed on EHS & Sustainability initiatives with a theme approach in the key areas, where our operations play a bigger role to ensure safe, healthy & sustainable workplace. Based on the above context, we have taken a theme for this year: "REACH Zero", to target Resource waste zero, Ergonomic risk zero, Accident zero, Carbon emission zero & Hazard zero in our activities.

During this quarter, 47 awareness programs were organized across the sites with more than 3936 employees benefitted from it. As part of the campaign, 17 competitions like essay, drawing, quiz, and speech were organized where more than 1715 employees participated, and winners were recognized in the town hall meeting. Walkathon organised at Ambattur site with covering 3KM on creating awareness to public on need of sustainability practices in day-to-day life where more than 100 employees have participated.

At the Ambattur site employees family members were called to the site. Following a talk on Traditional food habits, green home, Drug abuse & Safe home and various competitions were organized for employees spouses, and kids related to the theme. There was an overwhelming response with the participation of approx. 490 family members. There was a concurrent health camp organized for the family members.

National safety day was celebrated across the sites on March 4^th, starting with the pledge taken and engagement activities.

During the year, surveillance audits of ISO 14001(Environment management system) & ISO 45001(Occupational Health and Safety management system) were completed as part of the ZF corporate audit scheme. The plants at Mahindra World City and Jamshedpur have completed the re-surveillance audit for ISO 50001 standards for implementing energy management systems and achieving continuous improvement in energy performance.

During this year, mock drills and fire drills were organized in all sites to create awareness and test emergency preparedness.

During the year, Ambattur plant won "Platinum award" (1st place) for the Overall Best EHS practicing Company from The Confederation of Indian Industry at National level competition.

Ambattur plant won "Platinum award" for the Culture of continuous EHS improvement driven through TEI-CII National competition.

Ambattur plant won 2nd place in ZF Global EHS idea pitching contest on noise reduction from 104 dBA to 74 dBA in deburring gun.

Ambattur plant won Dr. Santhanam award from Indian Association of Occupational Health (IAOH) for Outstanding Ergonomics Improvements through AI with Video analytics.

Won "Sustainability excellence" award from Tata motors on the Sustainability initiatives implemented with the ESG framework across the sites with demonstrated actions on increasing Renewable energy and Energy efficiency program.

Ambattur site won "The Responsible Manufacture award" with gold category from Kaizen Hensei. This award promotes industries to adopt ESG goals in manufacturing area under Green Awareness, Green operation, green supply chain, green product, labour practices and Brand governance.

VIII Community development and social responsibility

As a responsible corporate citizen, the company engages in social responsibility and community development activities.

This year the activities were conducted through the internal engagement of employees and resources, primarily focused on activities that would help the needy sections of the society as specified in Schedule VII of the Companies Act, 2013 and the Companys CSR policy with a specific focus towards areas surrounding the Companys plant locations.

The Company views CSR as a powerful opportunity to help create a positive impact for the future by working together with Communities, Governments, and local bodies to deliver qualitative social improvement. The Company identifies appropriate CSR projects in line with the Companys CSR policy and implements them.

The Company had identified various projects towards spending 2% of average net profits for the previous three years and was in the preliminary stages of implementation.

However, due to the nature of the projects identified, could not spend 2% of the average net profits of the last three years during the year 2023-24 and have allocated in an ongoing project. The project would be completed during the next three years. This amount of Rs. 59 Lakhs on account of ongoing projects has been transferred to a separate account. The CSR Activities of the Company for the FY 2024 are mentioned in Annexure - 2 to the Directors Report. The company has identified four primary areas to focus its CSR activities.

Promoting road safety across India: Improve Road Safety by creating awareness among stakeholders like drivers and technicians from State Transport Undertaking at various states Gujarat, Karnataka, Kerala, Maharashtra, and Tamil Nadu.

Topics covered includes Do and Donts while driving, awareness of the safety system available on the vehicle, the importance of the maintenance of the key safety systems available on the vehicle.

Road Safety Awareness events carried out in 23 Locations from various States. 3 Dual Brake System Working Models provided to Driver/Technician Training Centre at Bengaluru, Ahmedabad, and Pune. Also 20 Workshop equipments installed at various divisional workshop of GSRTC, MSRTC, KSRTC, KeSRTC and TNSTC.

50166 Bus fleets with 20 Divisional Workshop of 5 Corporation are the beneficiaries by above working models and workshop equipment to reduce the downtime of vehicles and reduce the road accidents.

Community Service: The company has embarked on a range of community service projects aimed at bolstering local communities. These initiatives encompass enhancements to the infrastructure of Primary Health Care Centres, modernization of hospital amenities, refurbishments of Government school buildings, improvements to sanitation facilities in the schools, and the execution of various projects cantered on womens welfare, among others.

The Trauma & Emergency ward of Namakkal Medical College Hospital, Tamil Nadu, needed critical care equipment like C-Arm, Digital X-Ray Machine, Multichannel monitors, and Defibrillators, and the Company has provided them. The Primary Health Centres of Chengalpattu district, namely Vadakkuvayalur, Koovathur, Periyakayapakkam, Patel

Nagar, Reddypalayam, Nerumbur, Sadras, Maduranthagam, Ramapuram, Polambakkam were supported with equipment like Vaccine storage refrigerators, Semi-Automatic

Biochemistry Analysers and Cell counters.

The Perambakkam Primary Health Centre in Thiruvallur district has been significantly upgraded, transforming its Operation Theatre into a modular facility complete with sophisticated interior design, cutting-edge surgical equipment, and infrastructure designed to maintain a zero-infection rate. This renovation ensures the centre is fully prepared for a diverse range of surgical emergencies.

Additionally, the laboratory has been equipped with a state-of-the-art Fully Automated Biochemistry Analyser and Cell Counter, while the labour room has been enhanced with the addition of a GTG Machine, Foetal Dopplers, and a Defibrillator, furthering the centres capability to provide top-notch medical care.

The Primary Health Centres of Zone-7 Ambattur of The Greater Chennai Corporation namely Oragadam, Menambedu, Venkatapuram, Korattur, Varadharajapuram, Athipet, Padi Round Building, Mugappair, & Veeramamunivar were provided with Portable Ultrasound Machine, Heavy Gauge Vertical Autoclave, Cell counter machine, semi-automated Biochemistry Auto Analyser, ECG Machine, Digital Blood pressure equipment, Glucometer, Cervical examination speculums, Microscope & Digital weighing machines.

The Voluntary Health Services, which is a Trust Hospital located at Tharamani, Chennai, is a tertiary care Hospital treating both at free of cost as well as bare minimum charge for the underprivileged people of the community. They needed a C-Arm equipment for complex orthopedic and neuro surgeries and so the Company provided them with the state-of-the-art C-Arm medical equipment.

In alignment with the Government of Indias ambitious goal to eliminate TB by 2025, our Company has contributed a CBNAAT Medical device to the State TB Cell. This advanced diagnostic tool accelerates the detection of tuberculosis, facilitating broader screening and expedited treatment. The equipment has been installed at the Rajiv Gandhi Government General Hospital in Chennai, bolstering their capacity to combat this disease effectively.

The Government School in Barabanki, serving approximately 132 students from classes 6 to 8, previously had a dilapidated building and lacked proper toilet facilities, causing considerable inconvenience. In response, the

Company has revitalized the schools infrastructure with comprehensive renovations, including plastering, flooring, and painting. Moreover, a new toilet block has been constructed, ensuring the students now have access to adequate sanitation facilities.

The Government District Hospital at Saraikela was provided with Hot & Cold-water Dispenser to support the patients of the Hospital.

The Government School at Transit Camp in Rudrapur, which educates 250 students up to the 8th grade, has been enhanced with the addition of a **multipurpose hall**.

This new facility is designed to host a variety of activities, including assembly sessions, yoga classes, cultural events, and more. Furthermore, the construction of a new toilet block has significantly improved the sanitation facilities available to the students, ensuring a better and more hygienic learning environment.

In the aftermath of the Michung Cyclone in December 2023, the Company stepped forward to offer aid by distributing essential flood relief materials. This humanitarian assistance included food supplies, blankets, and personal hygiene products in Chennai, all of which were delivered in coordination with the local Government authorities. This initiative underscores the Companys commitment to supporting communities during times of crisis.

Environment and Sustainability: The company has implemented a suite of renewable energy solutions, including the installation of Solar Power Systems, solar-powered traffic signals, streetlights, high mast lights, and traffic blinkers. Additionally, the Company has undertaken an environmental initiative to desilt a rainwater pond at the Test Track, further demonstrating its commitment to sustainable practices and ecological conservation.

Solar power systems have been installed in eight Primary Health Centres, a Womens Polytechnic College, and a school, based on necessity. The Primary Health Centres reported that, despite the December 2023 cyclone, they experienced no power interruptions, enabling them to continuously deliver healthcare services to underprivileged communities.

Installation of Solar based Traffic Signals and blinkers has enhanced road safety with uninterrupted power supply.

Company has also installed 365 Solar based streetlights and 20 Solar based High mast lights which has benefited the public, students at schools and womens polytechnic.

Employability & skill enhancement through partnerships with educational institutions:

Centre of Excellence (CoE): In line with the recent trends in Industry 4.0, Smart factory initiatives, following CoEs were set-up to enhance students skills and make them better employable.

SRM IST: CoE on Smart factory

Hands on training for IOT and its application conducted on 16th and 17th October 2023 covering 20 Mechatronics students and a full trainer kit has been provided to them.

In-house training on IoT modules was conducted on January 4-5, 2024, to train the selected students in a "Train the Trainer program". This was conducted to upskill the students to possibly engage them as resource persons in the upcoming workshop on IoT.

4 IOT trainer kit made available to the students to do automation trials on various topics.

Total of 100 students covered in the various IOT workshops from October 2023 to March 2024.

Chennai Institute of Technology

CoE set-up in Electronics hardware and embedded technology.

Summary of activities (Apr 2023 Mar 2024):

? Over 1100 students in 6 batches (1^st and 2^nd year) were trained in the fundamentals of embedded technology and

IOT.

? About 68 students from two batches of other colleges were also trained.

? IOT Project expo involving 219 students (1st to 3^rd year) was conducted.

ZF Veltech centre for IOT and Smart factory Initiatives

? 15-day Internship program covering 12 students - exposure to industry grade raspberry Pi, data export through thingsboard and Node-RED (low-code development tool).

? 3-day executive development programme on IOT organised from July 2023 March 2024 covering 103 students and 6 faculties along with ZF employees. ? Initiated 6 projects with students and pilot projects are in progress.

? 2 Industry visits made to the Company to understand applications of IOT.

ZF Rajalakshmi Institute of Technology, Centre of Excellence on Advanced analytics

2 teams formed on the following topics.

1. Data collection from Vaahan portal for Aftermarket business entitlement.

5 students participated in this, and 2 reviews were completed from April to Sept 2023. Students regularly worked with ZF team to collect data, stratify them, and bring them to a meaningful dashboard. As a next step, they are working with our business team to work on a predictive modelling.

2. 2^nd team formed to build an app for Transport fleet management

11 students participated in this and focused on data collection and dashboard creation.

Data was taken from their own internal running bus route and the students presented the same to ZF team.

IX Financial Statement

(C in lakhs)

Particulars	Standalone		Consolidated
	Year ended 31.03.2024	Year ended 31.03.2023	Year ended 31.03.2024	Year ended 31.03.2023*
Revenue from Operations	378,370.85	344,458.60	381,564.74	344,424.53
Other Income	9,577.37	6,701.31	9,481.61	6,698.21
Total Income	387,948.22	351,159.91	391,046.35	351,122.74
Profit before interest depreciation and tax	65,891.45	53,731.74	66,123.85	53,733.88
Finance Costs	500.91	566.54	500.91	566.54
Depreciation	10,948.78	10,476.38	10,979.88	10,477.68
Profit before tax	54,441.76	42,688.82	54,643.06	42,689.66
Provision for taxation (including deferred tax and tax relating to earlier years)	13,963.82	10,921.48	13,998.41	10,922.48
Profit after tax	40,477.94	31,767.34	40,644.65	31,767.18
Other Comprehensive Income / (Loss) for the year net of tax	(58.63)	12.69	(58.63)	12.69
Total Comprehensive Income for the year Net of Tax	40,419.31	31,780.03	40,586.02	31,779.87

In the preparation of financial statements, the company has followed the Indian accounting standards (Ind AS) as notified under section 133 of companies act 2013 read with the companies (Indian Accounting Standards) Rules.

Key Financial Ratios

Particulars	2023-24	2022-23	Significant changes compared to previous year.	Detailed explanation for the change
			i.e., 25% or more
Current ratio	4.94	4.19	N. A	N. A
Debt-equity ratio	NA	NA	N. A	N. A
Debt service coverage ratio	54.91	51.53	N. A	N. A
Return on equity ratio	0.16	0.14	N. A	N. A
Inventory turnover ratio	14.70	15.00	N. A	N. A
Trade receivables turnover ratio	4.47	4.83	N. A	N. A
Trade payables turnover ratio	6.50	6.40	N. A	N. A
Net capitals turnover ratio	1.92	2.02	N. A	N. A
Net profit	10.70	9.22	N. A	N. A
Return on capital employed	19.43	17.64	N. A	N. A
Return on investments	7.84	5.40	45%	*

* Return on investments has increased more than 25% due to increase in income generated from invested funds on account of better market conditions.

X Cautionary Statement

Statements in the management discussion and analysis report describing the Companys objectives, projections, estimates, and expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.