zf commercial vehicle control system india ltd share price Management discussions


The company provides 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 customers access to the broadest range of commercial vehicle solutions in key domains like Automated Driving, Electric Mobility, Shared Transportation and Fleet Operations Digitalization to enable Next Generation Mobility. NOW. Our local teams and partners are established across the country to offer 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. ZF 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, deleveraged 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 56.4 in March 2023 compared to 54.0 in March 2022. Based on data provided by the NSO, on the supply side, real gross value added (GVA) was at 6.4 percent in 2022-23, with its major components, including services, exceeding pre-pandemic levels Sector-wise, agriculture has remained the silver lining while contract-based services, manufacturing, construction were hit 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 and the Reserve Bank of India has also stepped in to provide adequate liquidity.

National Statistical Office (NSO) placed Indias real gross domestic product (GDP) growth at 7.0 percent in 2022-23 considering 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 the 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 2023-24 is projected at 6.5 percent. (Source: RBIs minutes of Monetary policy committee).

ii. Indian Commercial Vehicle Industry:

Commercial Vehicle (CV) sales are directly linked with economic activities in the country. The global automotive industry demand recovered from COVID-19 pandemic waves and challenges posed by continuous semiconductor shortages, Russia Ukraine War, and raw material inflation. In India, pick-up in infrastructure and construction coupled with increased economic activities have been fuelling truck sales across segments except for light commercial vehicles that have seen some softening in demand. Indian commercial vehicle space saw a growth of 37% over the previous year due to market recovery from COVID-19 and growth led by infrastructure projects and last-mile connectivity. The demand for FY23-24 looks to be promising due to growth in segments like construction, infrastructure, and logistics.

CV sales were up by ~37% for the year 2022-23 compared to the previous year. Growth in the CV segment is expected with improved fleet utilization, higher replacement, government infrastructure spending, e-commerce expansion, government initiatives to promote electrification and sustainability, and technological advancements.

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

• e-commerce will be a key driver for retail sales and is expected that about 25% of new sales will come through online channels (e-Commerce is expected to grow at a CAGR of 21% from 2022 to 2030)

• 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

• Vehicle scrappage policy for Government vehicles and the CESL tenders for electric buses will revive the bus market

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.

The Government of Indias FAME-II scheme and CESL 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 buses with alternate fuels like CNG, Biofuel, electric FCEV, H-ICE, etc., would also lead to 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 path. The market forecast points to an increase in the sale of light and intermediate commercial vehicles, with demand for high-tonnage trucks rising in FY 2023-2024. The production cycle will increase 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 system to detect irregular driving patterns

• Engines complying with BS VI emission norms

• 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)

• Electronic stability program and control (ESP)

• Collision avoidance warning system

• Lane departure warning systems

• Air suspensions for buses and trucks

The commercial vehicle industry is likely to sustain this growth for the next 2 to 3 years. Demand for commercial vehicles, particularly medium and heavy commercial vehicles, is likely to also benefit from various government initiatives to help revive the economy. II Opportunities & Threats

With the shift from BS IV to BS VI in 2020 and Phase 2 of BS VI RDE (Real Driving emission norms) from 1st April 2023, the auto industry has taken a significant step in the right direction by harmonizing and coming on par with emission norms of the European and American markets. The Stricter BS-VI regime normalizes the playing field for OEMs and the auto component industry alike to participate in the global market through exports, given that the vehicles and the technology in them would be at par with the global standards.

Stricter safety norms provide the company with a 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 Companuy worked with the OEMS and launched ESC with many customers.

With the Indian governments focus on electrification in the CV industry through FAME II & incentives through CESL tender; the adoption of EVs is gaining momentum, especially in the bus segment. The company worked together with the OEMs and launched e mobility products like electric compressor, electronic braking system successfully.

With improvement in infrastructure and express highways, the need for higher capacity engines and higher gear ratio transmission increases which open up 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, fleets, and aftermarket thus creating an increase in vehicle content, better technology penetration, and foraying into new domains for commercial vehicle technology.

During the year, the company 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), Advanced Air Processing Units among other technologies.

As a complete system solution provider, the company now uniquely connects truck, trailer, cargo, drivers, business partners, and fleet operators real-time to empower the fleets to significantly enhance safety and operational efficiency. The company is today working with several OEMs in the country to reduce the Total Cost of Ownership (TCO) by recommending the right value enhancers and by providing improved uptime for the fleets through its Fleet Management Solutions.

Industry shifts to better emission norms and upgrade of vehicle platforms has created numerous digitalization opportunities in the entire fleet ecosystem with huge potential to mobilize vehicle intelligence thereby providing deep meaningful insights on vehicle performance to the end user/fleet owner. These insights when utilized effectively have the potential to transform user experience to a whole new level.

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 at ramping up its sales, service, and distribution network to effectively cater to fleets and mobility users across the country. Leveraging the wave of digitalization, the company is also exploring the use of digital models and other initiatives to be ahead of the curve. The authorized service center network is expanding and currently, the Company has around 280 service centers with a pan-India presence to cater to customer requirements. These initiatives have resulted in improved service practices, and availability of genuine parts, and generated additional revenue for the company. Given the opportunities available in the commercial vehicle segment we expect the activity levels of the competitors to also be on the rise. 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. The company has been accepting payments through arrangements with the banks the customers have made on a selective basis. The Company does not consider any incremental material recoverability risk. It is expected that the situation would improve going forward. The company has taken all steps to conserve cash during this period, as revenues were hit. The company also has imposed strict cost control measures to reduce and avoid discretionary spending. However, cash and profitability are expected to be impacted due to fluctuations in activity levels.

The Company has a robust ERP system in place and all its locations are well-networked. All reporting systems worked seamlessly without any disruption and ensured adequate controls. Apart from the above, the cyclical nature of the Indian commercial vehicle industry presents its own risk to the business. The operating expenses are likely to rise with the expected increase in prices of key raw materials.

STEEL

Steel Outlook in India

In the past 10-12 years, Indias steel sector has expanded significantly. Production has increased by 75% since 2008, while domestic steel demand has increased by almost 80%. The capacity for producing steel has grown concurrently, and the rise has been largely organic.

In FY22, the production of crude steel and finished steel stood at 133.596 MT and 120.01 MT, respectively. The consumption of finished steel stood at 105.751 MT in FY22. In April 2022, Indias finished steel consumption stood at 9.072 MT. In April-July 2022, the production of crude steel and finished steel stood at 40.95 MT and 38.55 MT respectively.

In FY22, exports and imports of finished steel stood at 13.49 MT and 4.67 MT, respectively. In FY22, Indias export rose by 25.1% YoY, compared with 2021. In FY21, India exported 9.49 MT of finished steel. In July 2022 exports of finished steel stood at 3.80 lakh MT.

The annual production of steel is anticipated to exceed 300 million tonnes by 2030-2031. By 2030-31, crude steel production is projected to reach 255 million tonnes at 85% capacity utilization achieving 230 million tonnes of finished steel production, assuming a 10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished steel. With net exports of 24 million tonnes, consumption is expected to reach 206 million tonnes by the years 2030-2031. As a result, it is anticipated that per-person steel consumption will grow to 160 kg.

The World Steel Association (world steel) considers that global steel demand in 2023 will grow by 1% over 2022 levels (from ~1796.7 million tonnes in 2022 (https://worldsteel.org/)

Data shows that apart from China, production in other key regions, such as Europe, too declined 10 percent on-year and the US witnessed a decline of 5 percent. On the other hand, India and the Middle East witnessed a year-on-year growth of 5 percent and percent, respectively

• Domestic steel production and consumption grew by 5.7% and 11.5%, respectively, on a year-on-year (y-o-y) basis during the first nine months of FY23 (April-December).

• Steel exports declined sharply by 54% y-o-y in 9M FY23 due to weak global demand and an export duty of 15% imposed on steel products from May 2022 to November 2022. India became a net importer of steel with a 38% decline in exports y-o-y during Q3FY23. During the same period, imports grew by 70%.

• International steel prices are expected to remain elevated due to high input costs, primarily iron ore and coking coal, and the ongoing geopolitical crisis. Domestic prices are also demonstrating an upward trend in line with global prices supported by healthy domestic demand.

• The domestic steel demand growth will be healthy at 1012% in FY23, driven by continued thrust on infrastructure development and pick-up in the real estate and construction activities amid an overall economic revival. While the exports declined sharply in 9M FY23, the recent withdrawal of export duty on steel products and iron pellets as well as a reduction in the export duty of iron ore lumps and fines is expected to reverse this trend with the full impact expected by early FY24.

Momentum in Steel Consumption

During 9M FY23 (April-December), the crude steel production and finished steel production had increased by 5% and 5.7%, respectively, on a y-o-y basis. Domestic consumption increased by 11.5% y-o-y to 86 million tonnes during this period. Indias steel consumption was at 106 million tonnes in FY22, up from 95 million tonnes in FY21, an increase of 11.4% y-o-y on account of increased consumption by the government on varied infrastructure projects, as well as the resumption of real estate and construction work on a lower-base of FY21.

The Governments thrust toward infrastructure projects is majorly contributing to the rise in steel demand in the domestic market. Improving activities in the construction sector along with an uptick in the real estate and automobile sector is expected to boost the demand for steel products in the industry. With increased government spending towards various infrastructure sectors such as roads, railways, airports, ports, mass transport, waterways, and logistic infra, an increase in capex allocation by 38% y-o-y by central public sector enterprises, and government initiatives to support the steel production will continue to augment the domestic steel demand in the industry.

Steel prices likely to inch up on global demand revival International steel prices remained high in March 2022 and April 2022, mainly due to the Russia-Ukraine crisis.

The average domestic finished steel prices peaked at Rs 96,079 per tonne in April 2022. After a sharp uptick, it started to witness a downward trend and declined to Rs 69,084 per tonne in December 2022, a decline of 17% on a y-o-y basis. The export duty imposed on a range of finished steel products resulted in lower exports which caused a build-up in domestic inventories. The international

ZF COMMERCIAL VEHICLE CONTROL SYSTEMS INDIA LIMITED

prices were also on a declining trend on account of weak global demand. Moreover, the prices of iron ore have softened by about 20.6% to Rs. 4,100 per tonne in December 2022 as compared to Rs. 5,964.50 per tonne in May 2022, due to increased domestic supply considering a hike in duty on iron ore exports to 50% since May 2022. These factors in turn resulted in a decline in domestic steel prices.

Following the reduction in export duty on iron ore, domestic prices are expected to increase. In January 2023, NMDC hiked the prices for iron ore lumps and fines to Rs. 4,300 per tonne and Rs. 3,410 per tonne from Rs. 4,100 per tonne and Rs. 2,910 per tonne, respectively. The domestic steel prices are expected to directionally follow the global prices and strengthen due to continued strong domestic demand and increase in input prices.

Aluminium

At the end of 2021, market watchers were expecting a deficit in the aluminium sector, with a higher environment for prices.

But after increasing steadily in the first few months of the year, aluminium was unable to hold onto its gains. The London Metal Exchange aluminium price plummeted from a high of US$ 4,000 per metric ton (MT) in March to a low of US$ 2,079 in September. “The impact of the Russia-Ukraine conflict, power shortages in Europe and China, and fears of a recession have dominated price direction.”

Aluminiums price performance in 2022. Chart via the London Metal

Exchange.

High energy prices have led to numerous production cuts in China and Europe since the start of the war — Europes energy crisis paired with hydropower shortages in China have impacted nearly 4.5 million MT per year capacity, as per Wood Mackenzie.

What factors will move the aluminium market in 2023?

As the new year begins, there are a few factors investors interested in the aluminium industry should consider.

Wood Mackenzie anticipates a muted global recovery as improved Chinese demand due to the relaxation of strict COVID-19 restrictions offsets the still-weak demand growth seen elsewhere. The risk of disruption in Europe remains, with nearly 400,000 MT

of capacity vulnerable to closures if power prices spike again, according to Wood Mackenzie data. Aluminium supply is poised to grow marginally as greenfield projects, expansions, and restarts add to supply in the future.

Panelists recently polled by Focus Economics see aluminium prices remaining around current levels through Q4 2023. They expect prices to average US$2,395 in Q4 2023 and US$2,332 in Q4 2024.

“Demand will likely be determined by the rate at which Chinas economy rebounds, especially the highly-indebted but aluminium- hungry construction sector,” FocusEconomics states in its latest report.

On supply, lower average energy prices than in 2022 should limit further closures of smelters, while the London Metal Exchanges November decision not to ban Russian metals has further alleviated supply fears.

Russian metal remains the biggest uncertainty

One potential source of price volatility would be sanctions on Russian material either by the US or the EU. Metals have been mostly spared in the rounds of sanctions imposed on Russia that followed its invasion of Ukraine on 24 February, 2022 but it has been reported that the US is considering an effective ban on Russian imports of the metal. A complete ban on Russian aluminium, increasing tariffs to levels that would effectively act as a ban and sanctioning the company that produces Russian aluminium, Rusal.

The only government to take direct action against Russias aluminium sector so far has been Australia, when in March it banned the export of bauxite and alumina into the country, effectively freezing Rusals off-take flow from the Queensland Alumina joint venture. In Russias other top raw material supplier, Ukraine, the war has closed Rusals Nikolaev refinery. The alumina gap has been filled by Chinese producers, which have been increasing their exports to Russia.

However, if the US decides to sanction Rusal, the impact could be severe, bearing in mind the markets reaction to the sanctions in 2018 when the LME prices jumped to $ 2,718/t, at the time the highest since 2011 before gradually falling in the following weeks and months. Sanctions were then lifted in January 2019.

If the US decides to go ahead, the move could freeze the Russian producer out of Western markets, depending on the severity of sanctions, which would boost global prices for the metal and distort global aluminium trade flows.

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 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 identified and mitigation measures are periodically checked by the internal audit team and are communicated to the Board of Directors.

During the year 2022-23, 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 risk mitigation in place & future risk mitigation action with timeline 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 2022-23, new manufacturing lines were set up for Inversion Relay Valves, Trailer Control Valves, Integrated Pedal Units, and Graduated Hand Control Valves creating additional manufacturing capacities including a special focus on realizing self-reliant plants closer to customers. Manufacturing capacities were scaled up for the export of Twin Cylinder Compressors and Air Supply Units to Europe and actuators for the domestic market to capitalize on growth opportunities. New products such as compressors, air supply units, vacuum pumps, actuators, and push-type connectors were successfully launched to international and Indian OEMs. E-compressors were launched in the domestic market for EVs pioneering transformation towards next generation mobility technologies.

Significant gains in productivity & quality were realized through new process technologies such as fully automated crankshaft & flange machining cells and vision-based PDI systems combined with traceability implementation. The company had executed more than 350 projects in the areas of HC Optimization / Loss reduction / Efficiency Improvement / Material flow improvement. To keep pace with digital disruption, the company has leveraged the citizen development framework allowing employees to develop their own apps/reports driving productivity and efficiency in their daily routine. This has improved transparency and better decisionmaking in the factory floor. Disclosures continued to be filed within the group for indigenously developed process inventions leveraging lean and frugal engineering capabilities.

The company has improved its planning cycle using the S&OP framework, with an effective order management process in ERP, and has implemented a safety stock management process to meet demand uncertainty in the short term. The SI&OP framework ensures proactive capacity planning and drives actions to debottleneck the in-house capacity and meet the ongoing/rapid demand changes we are witnessing from our domestic OE market. Keeping in mind the sustainability targets, the company has 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). Production lines and distribution centers are being optimized closer to customers to reduce their carbon footprint. These measures have also helped to reduce our packing & freight costs by over 10% from the previous year. Plant Compactness

and Layout Efficiency (PCLE) assessment was also done and a roadmap for further optimization of floor space was developed. The company had already realized space productivity of 824.6 sqm during the year.

As part of sustainability initiatives, the energy efficiency program rolled out involving all stakeholders in the operations as well as in other areas where 9% energy reduction resulted by implementing 54 projects across the sites. Renewable energy: we have purchased 2 MW of Solar & 1 MW of Wind energy from third parties in Ambattur and Mahindra city respectively contributing renewable energy coverage of 14% for the company. During the year, the company has also installed roof solar with a capacity of 636 KWP at the Mahindra city plant with average production of 2800 units per day.

Total Employee Involvement (TEI) is the key pillar that engages employees across all sites and functions of ZF Commercial Vehicle Control Systems India Limited. In 2022, we won a total of 39 External awards from all competitions. 14 at the National level, 10 at the Regional level, and 15 at the State level conducted by CII, ACMA, QCFI, and others. Some of the significant awards include: Mahindra City plant participated in Kaizen Hansei Manufacturing Excellence assessment and won Gold Award : Team from Ambattur won First prize in CII National level Lean competition : Team from Mahindra city won First prize in CII State level Kaizen competition : Team from Jamshedpur won First prize in Regional QC competition from ACMA : Team from Mahindra City won first prize in Regional Kaizen competition from ACMA : Team from Jamshedpur won first prize in Regional Kaizen competition from ACMA

B. Quality

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

The quality systems in the company aim at achieving total customer delight through its focus on improving product quality and conforming to world-class standards. This is achieved through the inculcation of ZF DNA of Quality and transformation among employees towards zero PPM. The Company is at 7 PPM for the year 2022-23. Customers continue to expect the industry benchmark of Zero PPM and zero field failures till 1 lakh KM and no unplanned dealer visit. Also, we aim towards zero defect performance and a mindset of zero tolerance for deviations. To meet the ever-evolving customer requirements of the global quality standard with domestic cost, it is necessary to standardize the process, promoting the right quality mindset through ZF DNA of quality methodology, mapping peoples competency with the latest development in technologies, operating with right competency/skills of the workforce to consistently supply right quality of products.

Six Sigma tools are used for analysis and projects are rolled out for each customer to meet their requirements and to standardize all critical production lines. Deploying “VDA6.3” and “VDA6.5” process and product requirements, product safety standards, and IATF 16949 helped the company to eliminate defects significantly. Project quality along with product engineering quality achieved 100% customer PPAP “First Time Right” for all critical launches for both domestic and export customer products and ensured 100% green launch. Significant efforts were put in to improve product quality which ensured product reliability improvement, thus resulting in warranty claim reduction.

Total Quality Management is a way of life at the Company. As part of this, 100% participation in total employee involvement has been successful for the past two decades. Employees across all the plants were involved and have completed 250 quality control circle projects, 194 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 99268 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. To foster employee engagement across all plants, interplant quality circle and six sigma competitions were conducted, and the best teams were recognized.

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 team won the ZF DNA of Quality Excellence award at the corporate level.

2. CVS Ambattur team was awarded Q Prime certification & Award during the Annual supplier meet by Daimler India Commercial Vehicles Ltd.

3. CVS Pant Nagar team won runner-up award in my supplier concept from Ashok Leyland.

4. CVS Jamshedpur team won the Certificate of Excellence in Quality Month of Tata Motors.

5. CVS Field Quality team won the Excellence award from Switch Mobility.

6. CVS Lucknow won the gold award in Quality Month from Tata Motors.

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

7. CVS Ambattur team won runner-up award in the National ZED competition at CII

8. CVS Jamshedpur team won the gold award in ACMA 2nd Regional competition.

9. CVS Jamshedpur team won runner-up award in the 17th National Quality Circle competition.

10. CVS Mahindra city team won runner-up award in the 7th National Poka yoke competition.

11. CVS Ambattur team won the gold award in CII 24th state-level competition.

12. CVS Ambattur team won the Platinum award in National Institution for Quality and Reliability competition.

13. CVS Ambattur team won runner-up in the 7th ACMA Regional Poka yoke competition.

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 endeavor 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 accelerate its digital transformation in line with the Global ZF IT strategy.

The Key focus areas in the Global ZF IT strategy cover :

1. Sustainability: Improving sustainability IN and BY IT (Sustainability4IT & IT4Sustainability) by Acting for climate and nature.

2. Digital Fitness: Lay a solid foundation for future digital transformation with a consistent transition to new-age- adapting architecture, using API and transforming to the cloud.

3. Innovation: Invest and foster “Business Outcome Driven” innovation by teaming up with business partners, utilizing new technology to create new business solutions

4. Security: Continuously improve protection against operational threats, disclosure, theft, and manipulation and ensure compliance and availability of systems and data

5. Operational Excellence: Reinvent IT Operation Model by strengthening effectiveness, and efficiency to increase customer value and productivity

IT in the region aligns with the Global ZF IT strategy and framework and works towards addressing the CVS region-specific needs and priorities. All IT Services, Infrastructure, Servers, Networks, and Components align & comply with the Global ZF IT Specifications and are delivered through the standard ZF IT Business Services Catalogue.

Democratization of IT (DoIT) and the development of business teams as citizen developers are also part of the overall strategy. Microsoft Power Platform is used to develop Citizen Developers in the business community. Periodic MS Power BI training is imparted in batches to nominated and interested business users across all business functions enabling them to develop skills to create their analytics and dashboards on their own with minimal dependency on IT. IT provides support in setting up the Data platform.

The Digital Manufacturing Platform roadmap being set up to enable a connected and Smart Factory in all the manufacturing sites. Assessment and Improvement of the Maturity levels of Production IT Security across all sites is part of the roadmap.

Digital transformation projects are tracked & implemented based on the impact on savings and productivity of the business functions. Six Sigma methodologies are adopted to evaluate ROI, business case, savings realization, etc., for every digital project. The primary focus of all initiatives is to ensure a frugal but very impactful solution implementation. Existing successful digital project implementations in specific sites/plants are extrapolated for implementation across all business sites in India.

Proof of Concepts is planned and implemented in continuously evolving new digital technologies & platforms by leveraging on an ecosystem consisting of internal resources at the ZF IT Centers, centers of excellence, start-up organizations, university collaborations & NASSCOM events.

VI Human Resource Development

The year 2022-23 has been the year of recovery from the postpandemic scenario wherein the plants were fully operational at all sites and non-manufacturing functions supported business growth by a hybrid working model. In accordance with this, the policies were revisited and revised accordingly to the employees needs. Great resignation was an unpredicted trend where the attrition rate had crossed 20%, especially in the R&D and IT centers. Suitable retention measures have been initiated to curb attrition by retaining High Potential (HIPO) talents and rolling out mid-term market corrections to stay at par with market offerings. The top priority for the Human Resources function is employee retention, managing the post-pandemic 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.

As part R&D footprint in India for CVS a new facility was inaugurated on 4th Nov 2022 at DLF IT park, Manapakkam, Chennai. This is one of the key milestones showing growth prospects and footprint expansion in India for the CVS Division. My HR Suite (MHS) transition for ZF CVS India was completed as part of the ZF transition process with respect to Human Resources Information Systems (HRIS).

Talent Acquisition has been a vital part as we have set up and strengthened the GTA team for Div. CVS India which is operating from Chennai and supporting the R&D and Business functions of CVS India. We have hired over 544 employees across all sites during this period to meet the HC growth for CVS India. On the campus hiring, we have inducted 33 fresh engineers from tier 1 colleges as part of our Campus2Corporate program.

Talent development has always been the key focus for HR where in initiatives like ZF Drona by Great Managers Institute had been kicked off to quantify style, coach, and certify People Managers. There were 27 nominations for CVS India and 16 of them have been certified with Great People Manager certification. Hello ZF team an Employee Engagement survey was rolled out as a pilot for the R&D function at CVS India. There was a participation of 93% and the average engagement index was at 73%. Suitable focus areas and action plans were initiated along with the People Managers and this initiative will be rolled out globally covering all the regions and divisions of ZF.

Engagement events like Annual family day celebrations, Annual family sports day have resumed as usual as a direct event inviting

employees and family members after the 2020 pandemic crisis which was well received overall.

Other 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 our division has prioritized the initiative and had attracted diverse talents at our sites and will have a progressive increase in giving opportunities to promote underrepresented groups and ensure inclusion in its processes and systems.

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. The Companys talent retention was very challenging due to great resignation trends however the retention was maintained at 92% while similar industry attrition rates are at an average of 15%.

As part of the collective bargaining process our plant at Mahindra world city has signed a long-term wage settlement valid for 4 years from Sep 2022 onwards with our union associates. The year saw positive and cordial Industrial Relations at all the Companies sites thus maintaining a healthy IR climate.

As of 31st March 2023, the Company had 2181 employees on its rolls.

VII Environment, Health & Safety

Every year the first quarter is focused on EHS themes. This year we focussed on Sustainability initiatives with a focused approach in the key areas, where our operations play a bigger role to improve the climate actions in everyday business. This theme speed our actions towards the ZFs ambitious targets of climate neutrality by 2040 by setting up a strong base to improve upon in our region. Based on the above context, we have taken a theme for this year: GREENCHAMP” for sustainable manufacturing towards net zero ambition, our main objective is to improve the sustainability initiatives around improving energy efficiency, increasing Renewable energy, moving towards zero waste to landfill and water consumption reduction.

During this quarter, awareness programs were organized across the sites with more than 428 employees getting benefitted. As part of the campaign few competitions like Essay, Drawing, Quiz, and Speech were organized and 346 employees participated, and winners were recognized in the town hall meeting.

At the Ambattur site employees family members were called to the site. Following a talk on Healthy lifestyle and, first aid various competitions were organized for employees spouses and kids related to the theme. There was an overwhelming response with participation of approx..450 family members. There was a concurrent health camp organized for the family members.

On March 4th National safety day was celebrated across the sites starting with the pledge taken and a lot of engagement activities were organized

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 Ambattur and Lucknow have completed the surveillance audit for ISO 50001 standards

for implementing energy management systems and achieving continuous improvement in energy performance.

The Company has taken many initiatives on improving ergonomics on the shop floor by revisiting the Ergo assessment in all sites medium fatigue stations were identified, and the ergonomics were improved achieving low-risk job stations of 99.6%, thereby improving productivity and operator morale.

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 the auto components sector topper and gold award in the CII EHS Excellence award presented by Thiru Siva V Meyyanathan, Minister to Government, Department of Environment & Climate change, Govt of Tamilnadu for the excellence in implementation of EHS management system. During this year, the Ambattur plant won the gold award in the QCFI Tamilnadu chapter for the effective implementation of EHS systems and practices.

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 9% energy reduction resulted from implementing 54 projects across the sites.

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 net profits for the last three years and spent 260.21 lakhs before 31st March 2023. However, for ongoing projects an amount of 124.19 Lakhs has been transferred to a separate account. Out of these ongoing projects, projects worth 73.85 Lakhs have already been executed and the amount has been spent since 1st April 2023 till date. The CSR Activities of the Company for the FY 2022-23 are mentioned in the 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 of Road Safety among various stakeholders like Drivers from State Transport Undertaking; Technicians from State Transport Undertaking; Institutional Drivers from various fleets thro RTO officials; Drivers from various fleets at Transport Nagar across Pan India.

Topics covered like Do and Donts while driving, awareness of the safety system available on the vehicle, importance of the maintenance of the key safety system available on the vehicle. Medical checkups for the targeted participants like eye screening, BP, and blood sugar level

88 Road Safety Awareness refresher events at 61 Cites of India covered 3268 drivers and 1832 technicians and 5100 beneficiaries went through medical checkups.

30 RPAS (Reverse Parking Assistance System) working models handed over to RTOs and STUs Driver Training Center during the course of training

Community Service: Various community services were undertaken including health checks for drivers during their training programs, upgrading the infrastructure facilities of Primary Health Care Centers, Hospital facilities upgradation, Government School building renovations, and toilet renovations of the Government schools and other women welfare-oriented projects, road safety infrastructure in and around the plant locations, etc.

The Trauma & Emergency ward of Chengalpattu Medical College Hospital needed critical equipment like an Ultrasonography machine, ECG, and multichannel monitors, and hence the Company supported them. The Primary Health Centre of Maraimalai Nagar, Chengalpattu district, was supported with equipment like an ECG machine, Vaccine storage refrigerator & freezer, Foetal doppler, and Glucometers. This PHC was also supported with desktop computers, printers, and tabs for the digitalization of patients data. Also, this PHC is installed with 5kVA Solar Power for green energy.

The Primary Health Centre of Ulandhai, Thiruvallur district was supported with an ECG machine, Defibrillator, Vaccine storage refrigerator, Dressing trolleys, Delivery instrument kits, and Foetal dopplers. The examination room for post-delivery patients was made by room partitions thereby giving privacy to the patients. Also, this PHC is installed with 3kVA Solar Power for green energy.

The Primary Health Centre of Vidayalur (Perumbakkam) was supported with semi-automated biochemical analyzer for blood tests of the patients.

The Government higher secondary school, Athipet, Chennai did not have a proper toilet facility and both the boys and girls of the school were facing hardship for the wash facilities and so the Company renovated the toilet for both the boys and girls and now good sanitation facilities have been provided to the school children.

The Anganwadi school located at Barabanki, Lucknow, was very badly damaged and posed a safety threat to the school children. So the Company demolished the damaged building and constructed a new building for the Anganwadi children.

The Junior high school, located at Barabanki was supported by the renovation of the toilet, furniture for two classrooms, and boundary wire meshing to prevent stray animals entry.

To support the womens welfare, the Company constructed a new toilet facility along with a drinking water facility at Mahila Thana, Barabanki to support the deprived women society who comes for counseling at Mahila Thana.

Employability & skill enhancement through partnerships with educational institutions :

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

3 Batches of training to external employees -Total 60 from May to Nov 2022

Training on concepts and visit to the CoE for demonstration Credit course started for SRM students on loT - made mandatory from the 2023 academic year Chennai Institute of Technology -

CoE set-up in Electronics hardware and embedded technology.

Summary of activities (Apr 2022 - Mar 2023)

IX Financial Statement in lakhs

Standalone Consolidated
Particulars Year ended 31.03.2023 Year ended 31.03.2022 Year ended 31.03.2023** Year ended 31.03.2022*
Revenue from Operations 344,458.60 254,335.39 344,424.53 254,335.39
Other Income 6,701.31 3,752.92 6,698.21 3,752.92
Total Income 351,159.91 258,088.31 351,122.74 258,088.31
Profit before interest depreciation and tax 53,731.74 29,007.64 53,733.88 29,007.64
Finance Costs 566.54 190.18 566.54 190.18
Depreciation 10,476.38 9,243.17 10,477.68 9,243.17
Profit before tax 42,688.82 19,574.29 42,689.66 19,574.29
Provision for taxation (including deferred tax and tax relating to earlier years) 10,921.48 5,366.85 10,922.48 5,366.85
Profit after tax 31,767.34 14,207.44 31,767.18 14,207.44
Other Comprehensive Income / (Loss) for the year net of tax 12.69 (353.58) 12.69 (353.58)
Total Comprehensive Income for the year Net of Tax 31,780.03 13,853.86 31,779.87 13,853.86

* Consolidation of financials for FY 2021-22 was considered for 3 months since incorporation of Wholly owned subsidiary (ZF CV Control Systems Manufacturing India Private Limited) w.e.f. 5th January 2022.

** Consolidation of financials for FY 2022-23 is considered for 15 months audited statements, as first financial year is ending on 31st March 2023 for the Wholly owned subsidiary Company (ZF CV Control Systems Manufacturing India Private Limited).

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.

6 Student batches trained on basics of IOT and embedded technology - approx. 1000 students (Apr2022 - Mar 2023)

2 Batches of other colleges also trained - around 500 students Awareness to 11th and 12th students - around 3000 students (8 hours)