Federal-Mogul Goetze (India) Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

(a) Industry structures and developments

Automotive Industry, globally, as well as in India, is one of the key sectors of the economy. Demographically and economically, Indias automotive industry is well-positioned for growth, servicing both domestic demand and, increasingly export opportunities. Due to its deep forward and backward linkages with several key segments of the economy, automotive industry has a strong multiplier effect and acts as one of the drivers of economic growth. The auto industry is highly competitive, consisting of organized as well as unorganized sectors and is highly fragmented with a significant number of small and medium-sized companies because of which the business rules are changing to meet the tough competition prevailing in the industry. Innovation, technological upgradation and cost saving hold the key to success to meet the expectations of the exigent competitive circumstances. However, the Indian auto component industry has been navigating through a period of challenges.

During the financial year 2021-22, the industry produced a total of 22,933,230 vehicles including Passenger Vehicles, Commercial Vehicles, Three-Wheelers, Two-Wheelers and Quadricycles as against production of 22,652,108 vehicles in the financial year 2020-21, registering a growth of +1 percent as compared to the financial year 2020-21. In line with the overall economy, the automotive industry recovered during the financial year 2021-22. The domestic sale of Passenger Vehicles improved by 13.2 percent in the financial year over the same period last year. The overall Commercial Vehicles segment grew by 16.7 percent in financial year should be 2021-22 as compared to the last financial year. The Medium & Heavy Commercial Vehicle (M&HCVs) and Light Commercial Vehicle segment witnessed a growth of 49.7 percent and 16.7 percent, respectively in financial year should be 2021-22 over the same period last year.

The financial year 2021-22 reflected a growth of 18.9% in domestic sale of Three-Wheeler vehicles as compared to last financial year. Within this segment, Passenger Carrier sale witnessed a growth of 35.6 percent, while goods carrier sales registered a decline of 7.9 per cent.

During the financial year, Two-Wheelers domestic sale registered a de-growth of 10.9 percent over the last financial year. Within the Two-Wheelers segment, sale of scooters and motorcycles recorded a decline of 10.6 percent and 10.3 percent respectively, while sale of Mopeds recorded a decline by 23.3 percent as compared to the last year.

Impact of Covid-19 reduced significantly during the financial year 2021-22. During the financial year, sale in Passenger Vehicle and Commercial Vehicle segments witnessed a growth of 42.9 percent and 83.4 percent respectively.

At the beginning of the financial year the country witnessed a major outbreak of second wave of Covid-19. This time, the spread was not only limited to urban areas but was also extended to rural India. Many States continued to remain under lockdown in May 2021, thus, impacting lives, economy, and automotive sector. The Governments vaccination drive significantly reduced the impact of third wave of Covid-19.

Global supply chain distortions became apparent in all regions of the world during the year. This was due to supply bottlenecks, particularly for electronic components including semiconductors chips.

(b) Opportunities and Threats

The Parent Company continues to support the Company with its technological expertise. With widely recognized brands, superior technology, strong distribution network and a committed team of employees, the Company is well positioned to take advantage of the opportunities and withstand the market challenges. The Company strives to create sustainable profitable growth by using superior technology and maintaining product quality and offering wide range of products at competitive prices, which will give it a competitive edge in the market. Major regulatory interventions, such as the accelerated transition to BSVI, adoption of electric vehicles, safety rules, scrappage policy, and stringent vehicle standards are leading to a shift in vehicle technology. This is creating significant challenges and your Company perceives these challenges as potential opportunities.

Your Company competes with many independent manufacturers and distributors of component parts. Management continues to develop and execute initiatives to meet the challenges of the industry and to achieve its strategy for sustainable global profitable growth. There are limited sets of customers in our business. Since, the competition is intense, we compete with suppliers both in the organized as well as unorganized segments. Technological edge, specialization, innovation and networking will determine the success of the Company in this competitive environment. Further, the policies of the Government play a vital role in the development of the automobile sector. Your Company has been employing the practices to proactively map the impact of its activities on its performance and profitability from economic, environment and social perspectives.

(c) Segment wise or product wise performance

The Company deals principally in only one segment i.e. automotive components. Therefore, segment-wise performance is not applicable. The Company is inter-alia engaged in the manufacturing and sale of Pistons, Piston Rings, Pins, Valve Seats and guides the performance whereof is as under:

		Rs. in lakhs
Details of finished goods sold	31st March 2022	31st March 2021
Pistons, Piston rings and pistons pins	113,456.52	93,040.22
Valve train and Structural components	14,971.21	12,721.78

(d) Outlook

The automobile sector continues to be cautious. Though the year 2022 started on an optimistic note, auto industry continues to witness challenges emerging from the on-going global geo-political situation viz. Russia- Ukraine war and lockdown in China. Supply chain of parts continues to be a key concern. The auto sector is expected to bounce back but the pace could be slower compared to the previous year. During the financial year 2022-23, the Management is expecting a growth in Indian automobile industry that should auger well for the Company.

The Indian Meteorological Department has forecasted normal monsoon and decent harvesting in agriculture crops, which is a critical factor for the overall economic growth, including the automobile sector. In order to support against the negative consequences caused by the pandemic, the Government has introduced multiple reforms to boost the auto sector such as, production incentive scheme (PLI), vehicle scrappage policy, which aim to reduce the number of old and defective vehicles, bringing down vehicular air pollutants, improving road and vehicular safety. However, the auto sector is grappling with rising raw material prices of steel, aluminum, copper and precious metals and increasing fuel prices which are likely to impact the growth of the automobile sector. Thus, this year is likely to be a challenging year for the auto component industry ahead.

The Company will endeavor to revitalize in near future as consumers regain confidence and demand for vehicles increases. To remain competitive in the challenging and demanding environment, the benchmark needs to be kept high in anticipation of the stated and unstated need of the customers and markets.

(e) Risks and concern

The Company operates in an environment, which is affected by various risks, some of which are controllable while some are outside the control of the Company. However, the Company has been taking appropriate measures to mitigate these risks on a continuous basis. Some of the risks that are potentially significant in nature and need careful monitoring are listed hereunder:

Pandemic: Impact on demand due to COVID-19 has emerged as a major business risk.

Economic slowdown: Slowdown in the Indian and global economy due to the outbreak of COVID-19, the on-going geopolitical conflicts could possibly affect the auto industry in the medium and short-term.

Raw material prices: Our profitability and cost effectiveness may be affected due to rise in the prices of raw materials and other inputs.

Foreign Currency Risks: Exchange rate fluctuations may have an adverse impact on the Company.

Technical Intensive Industry: The automobile industry is a technical intensive industry and thus faced with a constant demand for new designs, knowledge of nascent technology to meet market requirements.

Increasing competition: Increasing competition in the auto equipment sector, may put some pressure on the market share.

(f) Adequacy of Internal Control Systems

The Company has an Audit Committee headed by a non-executive independent director, inter-alia, to oversee the Companys financial reporting process, disclosure of financial information, performance of statutory and internal auditors, functions, internal control systems, related party transactions, investigation relating to suspected fraud or failure of internal audit control, to name a few, as well as other areas requiring mandatory review as per provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, with the stock exchanges. The powers of the Audit Committee, inter-alia, include seeking information from any employee, directing the Companys internal Audit function, obtaining outside legal or other professional advice and investigating any activity of the Company within the Committees terms of reference.

The Company has a well-defined internal control system, which aims at protection of Companys resources, efficiency of operations, compliances with the legal obligations and Companys policies and procedures.

(g) D iscussion on financial performance with respect to operational performance.

The required information forms part of the Boards Report and the members may refer the same.

(i) Material developments in Human Resources / Industrial Relations front, including number of people employed

The focus of Learning and Development was primarily on identifying and building synergies in the L&D processes and programs. Skill building in technical and functional areas continued to remain a priority and internal trainers capability building was done through Train The Trainer programs to drive this agenda. Training and development have always been our priority.

The total number of salaried and hourly employees (permanent) as on 31^st March, 2022 stood at 3092.

CONSOLIDATED ACCOUNTS

The Consolidated Financial Statements of the Company for the financial year 202122, are prepared in compliance with applicable provisions of the Companies Act, 2013, Indian Accounting Standards (Ind AS) under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values and the Securities and Exchange Board of India (Listing Obligations and Disclosure

(h) Significant changes in Financial Ratios

The key financial ratios are given as below:

Ratio	FY 2021-22	FY 2020-21	Explanation to significant change wherever applicable
Debtors Turnover	5.13	4.93	-
Inventory Turnover	7.63	6.07	Better production planning improved inventory holding period
Interest Coverage Ratio	18.05	2.57	Low Volume/mix during the year, due to Auto sector slow down.
Current Ratio	1.77	1.83	-
Debt Equity Ratio	-	-	-
Operating Profit Margin (%)	5.70	0.56	Due to lower business volume and mix impacted the profits during the year.
Net Profit Margin (%)	4.00	0.29	Due to lower business volume and one off impacting profitability
Fixed assets turnover ratio	2.65	2.11	-
Working capital turnover ratio	4.92	4.56	Due to lower business volumes

The details of return on net worth at standalone and consolidated levels are given below:

Particulars	Standalone 2022	Standalone 2021	Consolidated 2022	Consolidated 2021
Return on net worth (%)	9.23	0.50	8.96	1.27

Requirements) Regulations, 2015. The Consolidated Financial Statements have been prepared on the basis of Audited Financial Statements of the Company and its subsidiary company, as approved by their respective Board of Directors.