JMT Auto Ltd Management Discussions

1. GLOBAL ECONNOMIC OVERVIEW

Global economic growth has continued to soften this year. Subdued investment in emerging market and developing economies (EMDEs) is dampening potential growth prospects. Risks to the outlook remain firmly on the downside, including the possibility of escalating trade tensions. Another concern is rising debt, which may make it difficult for EMDEs to respond to adverse developments and to finance growth-enhancing investments. Reforms to boost private investment and productivity growth are needed, particularly in low-income countries, which face more significant challenges today than they did in the early 2000s.

Against a difficult backdrop that included intensified US-China trade and technology tensions as well as prolonged uncertainty on Brexit, momentum in global activity remained soft in the first half of 2019. There were positive surprises to growth in advanced economies, but weaker-than-expected activity in emerging market and developing economies.

Growth was better than expected in the United States and Japan, and one-off factors that had hurt growth in the euro area in 2018 appeared to fade as anticipated.

Among emerging market and developing economies, first quarter GDP in China was stronger than forecast, but indicators for the second quarter suggest a weakening of activity. Elsewhere in emerging Asia, as well as in Latin America, activity has disappointed.

From a sectoral perspective, service sector activity has held up, but the slowdown in global manufacturing activity, which began in early 2018, has continued, reflecting weak business spending in machinery and equipment and consumer purchases of durable goods, such as cars. These developments suggest that firms and households continue to hold back on long-range spending amid elevated policy uncertainty.

Against this backdrop, global growth is forecast at 3.2 percent in 2019, picking up to 3.5 percent in 2020. GDP releases so far this year, together with generally softening inflation, point to weaker-than-anticipated global activity. The projected growth pickup in 2020 is precarious, presuming stabilization in currently stressed emerging market and developing economies and progress toward resolving trade policy differences.

2. INDIAN ECONNOMIC OVERVIEW

India continues to remain the fastest growing major economy in the world in 2018-19, despite a slight moderation in its GDP growth from 7.2 per cent in 2017-18 to 6.8 per cent in 2018-19 according to the Central Statistics Organisation (CSO).

Though the World Bank report said, "Growth in India is projected to accelerate to 7.5 percent in FY 2019-20" it is quite apparent that the Indian economy is slipping into a recession. The real GDP growth has gone down from a peak of 8.2% in 2016-17 to 6.8% in 2018-19, with the fourth quarter of 2018-19 dipping to 5.8%. The first quarter of 2019-20 is expected to dip further to 5.6%.

This moderation in growth momentum is mainly on account of lower growth in ‘Agriculture & allied, ‘Trade, hotel, transport, storage, communication and services related to broadcasting and ‘Public administration & defence sectors.

The foreign exchange reserves in nominal terms (including the valuation effects) decreased by US$ 11.6 billion end- March 2019 over end-March 2018.

Decline in investment rate and fixed investment rate since 2011-12, seems to have bottomed out with some early signs of recovery since 2017-18. Fixed investment growth picked up from 8.3 per cent in 2016-17 to 9.3 per cent in 2017-18 and further to 10.0 per cent in 2018-19

Service sector is the most dynamic sector in the economy and has remained the key driver of economic growth along with being a major contributor to GVA and export basket of the Indian Economy. Growth in the industry accelerated during 2018-19 on the strength of improving manufacturing and construction activity. Manufacturing accounted for 16.4 per cent in total GVA in 2018-19, marginally higher than that of ‘Agriculture & allied sector.

Foreign direct investment (FDI) in India declined for the first time in the last six years in 2018-19, falling by 1 % to $44.37 billion as overseas fund inflows subsided in telecom, pharma and other sectors, official data showed.

Net Foreign Direct Investment (FDI) inflows grew by 14.2 per cent in 2018-19. Among the top sectors attracting FDI equity inflows, services, automobiles and chemicals were the major categories

According to Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows in India in 2018-19 stood at US$ 44.37 billion, indicating that governments effort to improve ease of doing business and relaxation in FDI norms is yielding results.

3. AUTOMOBILE INDUSTRY

3.1 GLOBAL AUTOMOBILE INDUSTRY

The global automotive industry is expected to begin a challenging phase in 2019, with OEMs especially facing multiple obstacles all over the world. China faced its first even decline in vehicles sales in over 20 years, the USA market grew marginally, the shockwaves of Brexit and USMCA deal are expected create across global markets and the new US- China trade war. This is expected to play out till 2020 at least with global markets expected to rebound by around 2023.

The automotive industry has evolved significantly over the past decade. Digital technology, change in customer sentiment and economic health have played a vital role in this evolution. OEMs and other key industry players are taking note of this evolution and investing heavily in non-commercial business practices of manufacturing vehicles.

Overall global demand remains healthy. Despite headwinds, the global automotive market has an overall strong outlook:

Chinese demand is expected to soften in 2019, with light-vehicle registrations down 1%-3% as comparisons ease in the second half of the year.

In Japan, demand is expected to increase 1%-3%. This is due to expected purchases ahead of a consumption tax increase (from 8% to 10%), set to take effect in October 2019.

The Indian government passed monetary and tax reform actions in 2017-18 that spurred light-vehicle demand up to a full-year increase of 8.3%. However, we expect tighter credit policy to dampen light-vehicle demand growth to 6%-8% in 2019.

The Brazil light-vehicle market saw a 13.7% increase in 2018 due to labor reform and favorable monetary policy. In 2019, though, political turmoil and unpopular pension reform could be significant risks to growth.

Russian light-vehicle demand is expected to increase 6%-8% in 2019, in the face of economic sanctions imposed by the international community and moderating oil prices.

These circumstances suggest that demand in the worlds major markets is likely to soften moderately but remain relatively healthy, as long as they arent subjected to a no-deal Brexit and trade-conflict escalation.

Trends transforming Automobile Industry

According to PWC the mobility of the future is "eascy" - electrified, autonomous, shared, connected and "yearly" updated. There are five trends transforming Automobile Industry.

Electrified - the transition to emissions-free mobility will become a global requirement. Electricity used to charge vehicles will increasingly come from renewable sources to ensure carbon dioxide-neutral mobility.

Autonomous - The development of vehicles which require no human intervention will reduce the use of public mobility platforms and offer individual mobility to new user groups.

Shared - Professionally managed fleets of shared vehicles will reduce the cost of mobilty by a significant amount through more efficient use of expensive mobile assets.

Connected - This applies in two ways: communication between cars or with traffic management infrastructure or between vehicle occupants and the outside world. The car of the future will become a "third place" between home and workplace, combining features of both.

‘Yearly updated - The range of models will be updated annually to integrate the latest hardware and software developments and react to changing requirements of shared fleet buyers.

The percentage of shared and autonomous mobility in overall road track will rise significantly. by 2030, the share of shared and autonomous driving in overall traffic may rise to as much as 40%. To remain successful, both manufacturers and suppliers will have to offer user-oriented innovations. The comprehensive and rapid reorganisation of the automotive sector after 2025 will have far-reaching consequences for the entire industry and its value chains.

3.2 INDIAN AUTOMOBILE INDUSTRY

The automobile industry in India is worlds fourth largest, with the country currently being the worlds 4th largest manufacturer of cars and 7th largest manufacturer of commercial vehicles in 2018. Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers dominate the industry and made up 81 per cent share in the domestic automobile sales in 2018-19. Overall, Domestic automobiles sales increased at 6.71 per cent CAGR between FY13-18 with 26.27 million vehicles being sold in 201819. Indian automobile industry has received Foreign Direct Investment (FDI) worth US$ 21.38 billion between April 2000 and March 2019.

Domestic automobile production increased at 6.96 per cent CAGR between 2013-2019 with 30.92 million vehicles manufactured in the country in 2018-19.

In 2018-19, commercial vehicles recorded the fastest pace of growth in domestic sales at 17.55 per cent year-on-year, followed by three-wheelers at 10.27 per cent year-on-year.

The passenger vehicle sales in India crossed the 3.37 million units in 2018-19, and is further expected increase to 10 million units by 2019-20.

The government aims to develop India as a global manufacturing as well as a research and development (R&D) hub. It has set up National Automotive Testing and R&D Infrastructure Project (NATRiP) centres as well as a National Automotive Board to act as facilitator between the government and the industry. Under (NATRIP), five testing and research centres have been established in the country since 2015.

The Indian government has also set up an ambitious target of having only electric vehicles being sold in the country. Indian auto industry is expected to see 8-12 per cent increase in its hiring during 2018-19. The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The first phase of the scheme has been extended to March 2019 while In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22. Number of vehicles supported under FAME scheme has increased to 192,451 units in March 2018 from 5,197 units in June 2015.

Automobile exports grew 14.50 per cent in 2018-19. It is expected to grow at a CAGR of 3.05 per cent during 20162026. Domestic two-wheeler industry is expected to grow at 8-10 per cent during 2018-19. Also, Luxury car market in India is expected to grow at a 25 per cent CAGR till 2020. The Government of India expects automobile sector to attract US$ 8-10 billion in local and foreign investments by 2023

AUTOMOBILE PRODUCTION TRENDS

4. AUTOMOTIVE COMPONENTS INDUSTRY

The automotive component industry that contributes 2.3 per cent to Indias GDP, 25 per cent to its manufacturing GDP and provides employment to 50 lakh people, stood at र3.95 lakh crore (USD 57 billion) for the period April 2018 to March 2019, registering a growth of 14.5 per cent over the previous year. Auto Component exports grew by 17.1 per cent in FY 2018-19 to र106,048 crore (USD 15.16 billion)".

Automotive Component Manufacturers Association of India (ACMA) observed that the first-half of the fiscal 2018-19 witnessed a robust double digit growth, however the second-half saw a significant slump in vehicles sales. There is a 15 to 20% cut in vehicle production leading to slowdown in component industry. Urgent government intervention is necessary to kick-start a long-term growth cycle for the Auto and Auto Components Industry.

Market Size

The auto-components industry accounted for 2.3 per cent of Indias Gross Domestic Product (GDP) in 2017-18. During the same period, 1.5 million people directly and 1.5 million people indirectly were employed in the auto-components industry. The auto components sector has been observing robust growth with a turnover of US$ 51.2 billion in FY18 and turnover is anticipated to reach US$ 200 billion by FY26. Indias exports of auto components could account for as much as 26 per cent of the market by 2021. Auto-component production in 2018-19 is expected to increase 12-14 per cent in FY19, on the back of robust growth in domestic and export markets. Production of Two Wheelers, Passenger Vehicles, Commercial Vehicles and Three Wheelers reached 24.50 million, 4.03 million, 1.11 million, and 1.27 million in 2018-19. According to Department for Promotion of Industry and Internal Trade, FDI inflow in automotive* sector from April 2000 to December 2019 stood at US$ 21.38 billion.

Favourable government policies such as Auto Policy 2002, Automotive Mission Plan 2016-2026, National Automotive Testing and R&D Infrastructure Projects (NATRiPs), have helped the Indian auto components industry achieve considerable growth. The government has also launched the FAME-II Scheme from April 2019.

India is emerging as global hub for auto component sourcing. A cost-effective manufacturing base keeps costs lower by 10-25 per cent relative to operations in Europe and Latin America. Relative to competitors, India is geographically closer to key automotive markets like the Middle East and Europe.

Industry Performance Review 2018-19:

• Exports: Exports of auto components grew by 17.1 per cent to Rs 106.048 crore (USD 15.16 billion) from Rs 90,571 crore (USD 13.4 billion) in 2017-18. Europe accounted for 33 per cent of exports followed by North America and Asia, with 29 per cent and 26 per cent respectively.

• Imports: Imports of auto components increased by 14.4 per cent to र1,23,688 crore (USD 17.6 billion) in 201819 from र106,672 crore (USD 15.9 billion) in 2017-18. Asia accounted for 61 per cent of imports followed by Europe and North America, with 29 per cent and 8 per cent respectively.

• Aftermarket: With increasing vehicle base in the country, the aftermarket in 2018-19 grew by 9.6 per cent to Rs 67,491 crore (USD 10.1 billion) from र61,601 (USD 9.2 billion) in the previous fiscal.

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

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

• Contribution of auto industry in the countrys GDP will rise to 13 per cent, currently which is less than 10 per cent

• More than 100 million jobs will be created in the economy

• Companies will invest around US $80 billion as a part of their capital expenditure.

• End of life Policy will be implemented for old vehicles

5. BUSINESS OVERVIEW

JMT Auto Limited is an automotive component manufacturer with advanced manufacturing capabilities and world class facilities in India, Singapore, Germany, Romania and Sweden. The Company also exports components to the US for the oil and gas industry.

India Operations

The Company was established in 1987 as Jamshedpur Heat Treatment Company and started operations in the heat treatment job-work business. Since then, the Company has grown its business to become a precision gear manufacturer with world class manufacturing capabilities including the latest gear and gear-shaft manufacturing technologies. JMT Autos core competence is in the manufacturing of high precision gears and shafts up to DIN 4 standard. The Company has also emerged as a leading precision machinist of super-finished pins and shafts for hydraulic applications and critical structural castings and forgings. The state-of-the-art and vertically integrated facilities in India include fully automated machining lines, design & engineering capabilities.

In the recent years, the Company has grown substantially, owing to a focus on quality, innovation and application of Lean Manufacturing principles enabling us to secure business across industries. We are greatly acknowledged in the global market place for the continuous improvement in product quality and advancement of our technologies.

International Operations

International operations of JMT Auto Ltd comprise a wholly owned subsidiary, Amtek Machining Systems Pte Ltd, incorporated at Singapore under which ALGA, an automotive component manufacturing company manufactures products exclusively for the automotive sector. Its products include flywheel starter ring gears for all kinds of motors, housing rings for trucks, mass rings, ramp rings, and sensor rings.

ALGA exports more than 95% of its production. The productive facilities encompass three plants in the Abadiano area that total 12,512 sqm. It has a total of 175 employees.

6. STRATEGY AND OUTLOOK

Over the last decade, the automotive components industry has registered a CAGR of 6.83 per cent and has reached to US$ 51.20 billion in 2017-18 while exports have grown at a CAGR of 11.42 per cent to US$ 13.5 billion. Auto components production in 2018-19 has increased to US$ 57 billion, showing an increase of 12-14% due to robust growth in domestic and export market. Indian tyre industry expects a 7-9 per cent growth over FY19-23. The capital expenditure by the domestic automotive component manufacture is expected at around Rs 24,000 crore (US$ 33.26 billion) over the FY19 and FY20. Domestic auto component industry is expected to grow at 15 per cent in FY19.

According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is well positioned to benefit from the globalisation of the sector as exports potential could be increased by up to four times to US$ 40 billion by 2020. The Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports ranging between US$ 80-100 billion by 2026.

According to IBEF India is expected to become the 4th largest automobiles producer globally by 2020 after China, US & Japan. The auto components industry is also expected to become the 3rd largest in the world by 2025. Domestic automobile production increased with 30.92 million vehicles manufactured in the country in FY19.

The Industry is expected to follow OEMs in adoption of electric vehicle technologies. The global move towards electric vehicles is generating new opportunities for automotive suppliers. The mass conversion to electric vehicles aims to generate US$ 300 billion domestic market for EV Batteries in India by 2030.

As per the Union Budget 2019-20, government moved GST council to lower the GST rate on electric vehicles from 12 per cent to 5 per cent. Also to make electric vehicle affordable to consumers, our government will provide additional income tax deduction of Rs 1.5 lakh (US$ 2,115) on the interest paid on loans taken to purchase electric vehicles

FAME-II (Faster Adoption & Manufacturing of Electric Hybrid Vehicles Scheme) has been notified to be implemented for 3 years from April 2019 with a total outlay of 10,000 Crores. The FAME - India Scheme formulated by Department of Heavy Industry led to a continuous increase in registered OEMs and vehicle models. Also, the scheme enhanced the sales of electric vehicles and about 261,507 electric/hybrid vehicles were supported under the scheme up to December

6, 2018. In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22.

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

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

At JMT Auto, we aim to be equipped for adapting to the changing scenario of the industry. We strive to enhance our core business by aligning with the changing demands of our customers, most of them being market leaders in the respective industry segments. We continue to adapt and structure our business in a way so as to be able to capitalise on growth opportunities from other future growth areas, with an aim at diversifying our end use segment and customer base. We cater to commercial vehicles, construction and off-road machinery; agricultural and farm machines as well as oilfield equipment and services sectors.

Oil and Gas sector has also been on a positive growth route with an increase of 14% in supply of components by JMT as compared to last year. The Company is currently working with two oilfield services companies for the development of new products. Additionally, the Company has experienced a substantial increase in orders received from existing and new oil & gas industry customers.

The Business Excellence Program, which we started in 2014, continues to facilitate a highly successful implementation of lean manufacturing processes. It remains the driving force behind JMT Autos cost controls and productivity initiatives, and is a key attribute of the Companys business strategy. JMT Auto has also taken up certain other strategic initiatives such as realigning the product mix and expanding the product range to increase the share of our value added product offering. Other initiatives centre around overall fiscal control, quality improvement, up-gradation in technology and research & development. The Company also continues to focus on cost reduction and rightsizing initiatives. We are confident that these initiatives, in particular the new set of products that are being developed, will help make JMT Auto much more competitive in the market place.

7. OPPORTUNITIES & STRENGTHS

Outlook for the Global Automotive Industry:

The global automotive industry is expected to begin a challenging phase in 2019, with OEMs especially facing multiple obstacles all over the world. China faced its first even decline in vehicles sales in over 20 years, the USA market grew marginally, the shockwaves of Brexit and USMCA deal are expected create across global markets and the new US- China trade war. This is expected to play out till 2020 at least with global markets expected to rebound by around 2023.

The automotive industry has evolved significantly over the past decade. Digital technology, change in customer sentiment and economic health have played a vital role in this evolution. OEMs and other key industry players are taking note of this evolution and investing heavily in non-commercial business practices of manufacturing vehicles.

Outlook - Indian Automotive Industry:

Indias apex industry body, Society of Indian Automobile Manufacturers (SIAM) has forecasted a single digit growth for overall vehicles sales in FY20, owing to rise in commodity price, election, below normal monsoon and recent repo rate cut by RBI.

According to SIAM, passenger vehicle sales are projected to grow between 3-5 per cent and commercial vehicle at 1012 per cent. The two-wheeler segment is expected to grow between 5-7 percent and three-wheeler segment is pegged to grow between 7-9 percent.

Driving this growth will be overall infrastructure and Gross domestic product that is estimated to grow at 7 percent during FY20. Other reason cited for growth was pre-buying of BS-IV vehicles in FY20 before BS-VI implementation and several new launches in the current fiscal year.

Major global OEMs have made India a component sourcing hub for their global operations. Several global Tier-I suppliers have also announced plans to increase procurement from their Indian subsidiaries. India is also emerging as a sourcing hub for engine components, with OEMs increasingly setting up engine manufacturing units in the country. For companies like Ford, Fiat, Suzuki & General Motors, India has established itself as a global hub for small engines.

Currently, the automotive sector contributes more than 7 percent to Indias GDP. The Automotive Mission Plan 2016-26 sets an aspiration to increase the contribution to 12 percent.

Several economic trends could help in meeting this target. Rapid urbanization means the country will have over 500 million people living in cities by 2030—1.5 times the current US population. Rising incomes will also play a role, as roughly 60 million households could enter the consuming class by 2025. At the same time, more people will join the workforce. Participation could reach 67 percent in 2020, as more women and youth enter the job market, raising the demand for mobility.

Government Initiatives

In the Automotive Mission Plan 2026, the government and industry set a target to triple industry revenues, to $300 billion, and expand exports sevenfold, to $80 billion. To meet these aims, it is estimated that the sector could contribute more than 60 million additional direct and indirect jobs, and the result could be improved manufacturing competitiveness and reduced emissions.

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

To tackle emissions, the government seeks to bring local standards up to par with global standards, enabling India to leapfrog from BS-4 to BS-6 emissions by 2020. Additionally, India has implemented Corporate Average Fuel Efficiency norms in which the manufacturers have to improve their fuel efficiency by 10 percent between 2017 and 2021 and by 30 percent or more from 2022.

To reduce dependency on oil imports, the government is promoting adoption of alternative fuels through FAME2, which is an extension of the original FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) initiative. Where "FAME-I" offered incentives to electric vehicles (EV) and hybrid EV buyers, FAME-II is expected to incentivize electrification of the public-transport fleet of buses and taxis, as well as facilitate demand for all types of alternative fuel.

Market Potential - Changing Trends

The global automotive industry is undergoing a cascade of disruptions that will reshape it in unexpected ways, and India will be no exception to this. While the Indian Auto Component Industry, which has recorded strong 18 percent YoY growth in FY2018 and surpassed a $50 billion turnover for the first time, is bullish on maintaining growth, it is also cognisant of the fact that it faces a number of challenges in the near-term.

Four key trends will shift markets and revenue pools, change mobility behaviour, and build new avenues for competition and cooperation.

Autonomous vehicles- Autonomous vehicles (AVs) offer promise to resolve some of Indias road-safety challenges. AVs have the potential to reduce traffic congestion and improve safety and fuel efficiency.

Shared mobility- Penetration of shared mobility in India remains low compared with China and the United States, but a major shift is under way in densely populated cities where the use of e-hailing cabs costs less, comparatively, than driving a personal car.

Electrification- Electrification has just started to take off in India. Factors such as declining prices of batteries and supportive policies from the government are stimulating the segments growth. The pros and cons of electrification continue to evolve. Reduction in emissions and less dependency on oil imports are clear advantages of electrification. The level of adoption of electric vehicles will determine its impact on the automobile industry.

POLICIES - AIDING GROWTH

‘FAME-II: Ministry of Heavy Industries and Public Enterprises has launched FAME-II India Scheme to provide financial support to electric and hybrid vehicles for a period of 3 years from April, 2019.

The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) India was launched in 2015 under National Electric Mobility Mission (NEMM). It aims at promoting eco-friendly vehicles in the country. Main thrust of FAME is to encourage electric vehicles by providing subsidies. FAME focuses on 4 areas i.e. Technology development, Demand Creation, Pilot Projects and Charging Infrastructure.

Objectives of the FAME-II scheme

• Faster Adoption and Manufacturing of Hybrid and Electric Vehicles, or FAME 2 scheme aims to boost electric mobility and increase the number of electric vehicles in commercial fleets.

• The outlay of ¹ 10,000 crore has been made for three years till 2022 for FAME 2 scheme.

• The government will offer the incentives for electric buses, three-wheelers and four-wheelers to be used for commercial purposes.

• Plug-in hybrid vehicles and those with a sizeable lithium-ion battery and electric motor will also be included in the scheme and fiscal support offered depending on the size of the battery.

The FAME India Scheme combined with ‘Make in India initiative of Indian Government with focus on improving ease of business will result in making India an even more cost effective manufacturing destination.

The Indian Governments Automotive Mission Plan 2016-26, the key driver of the ‘Make in India campaign envisages four-fold growth in automotive volumes by FY2026. The Indian auto sector has the potential to generate up to US$300 billion in annual revenues by FY2026, create around 65 million additional jobs and contribute more than 12% to Indias GDP, according to the plan prepared jointly by SIAM and the Government of India.

8. RISK AND CONCERNS

Policy & Regulations Changes: The biggest challenge faced by Indian Auto Industry is to meet the BS-VI emission norms. This will require huge investments towards cleaner technology, thereby making the vehicles pricier. The disagreement between the industry and the policymakers over a proposed deadline to convert some vehicle categories to electric from the present internal combustion engine (ICE) technology is adding to the uncertainties.

The ongoing trade-war between America and China, the hard Brexit, Iranian crisis and Saudi Arabian misdemeanors, Brazil falling out of the BRICS and Southern Europe trudging forever are all thick black clouds that can drown out even a sunny day. With Trump strengthening his hold on the Senate, China will continue to suffer and so will quite a few countries in the world as America reels back into a controlled market from a free-market policy.

CO2 regulatory economics is set to become complex with the European Union taking the lead and proposing extremely stringent targets post-2020. This will be taken up in a host of other nations bound by the Paris accord. Most oil importing countries will be keen on cost savings and will, therefore, push OEMs into reducing consumption and opting for hybrid and electric vehicles.

Demand Fluctuations: Industry observers believe that only 15 per cent of the vehicles produced in the EU will be pure electric by 2030. The majority would remain combustion or hybrid powertrains, although this scenario might be different in China, which will lead the pack in EVs.

For OEMs, this massive change would mean high startup investments and the reality of living with lower margins in the EV space. Components manufacturers and OEMs will have to continue this balancing act on their powertrain mix for some more years to come.

Macroeconomic Uncertainty: JMT Autos operations are spread across different regions. Due to the global nature of JMT Autos business, its operations are directly dependent on the general economic conditions across key global markets. In the recent past, global economic growth has remained volatile and uneven with several key markets facing economic challenges. The Company, on a regular basis, assesses and evaluates the macroeconomic performance in its key markets and takes suitable remedial actions as may be necessary from time to time to mitigate such risks.

Changes in Tax, Tariffs or Fiscal Policies: Imposition of additional taxes and levies designed to limit the use of automobiles could adversely affect demand for the Companys products. Changes in corporate and other taxation policies, as well as changes in export and other incentives granted by various governments, or import or tariff policies, could also adversely affect the Companys financial results.

Geopolitical and other Risks: Political instability, wars, terrorism, multinational conflicts, natural disasters, fuel shortages and their prices, epidemics, labour strikes all present business risks. To counter these risks, the Company continues to expand its geographic presence across all major automotive economies in the world.

Country Risk through Exports: Products produced by JMT Auto are exported to a number of different markets globally. This exposes the Company to various risks associated with international business transactions. These include various geopolitical risks, currency price regulatory risks and other such concerns.

Raw Material Prices: Prices and availability of various raw materials such as steel, non-ferrous, precious metals, rubber and petroleum products are dependent on various environmental factors. Even as the Company continues to pursue cost control measures, any unforeseen or sudden spike in cost of these items could impact the profitability of the Company to the extent that customer price pass through terms are not available. For JMT Auto, increase in the price of raw materials, especially steel, are passed through so there is a limited impact on our profitability.

Global Competition: With the integration of global automobile supply chains, the automobile components industry has become increasingly competitive with OEMs continuously scanning the market for lower prices and better terms. Even as the Company enjoys strong and long standing relationship with many global OEMs, it continues to invest in newer products and better quality control.

Financial Risk: Any change in interest rates, foreign exchange rates and commodity prices can potentially impact the financial performance of the Company.

Technological Changes: The business environment is evolving at a rapid pace. The changing technologies have led to a shortening of the life cycle of new vehicles. Additional challenges include supply constraints from Tier II suppliers, sustenance of operating cost efficiency gains and capacity expansions in the context of rapidly changing consumer demand preferences. The Company continues to invest in new technologies and capacities to address such risks. In addition, our focus on rationalisation both in terms of size and functions, enables us to continue to complement the manufacturing excellence programs that are being developed.

Risk Management: Strategic, operating and financial business risks are reviewed by the Audit Committee and the Board on a regular basis. In addition to the above risks, the committee monitors any potential new risks that may arise due to changes in the external environment. While the possibility of a negative impact due to one or more of such risks cannot be totally avoided, the Company proactively takes reasonable steps to pre-empt and mitigate these.

9. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an elaborate internal control system which monitors compliance to internal processes. It ensures that all transactions are authorised, recorded and reported correctly. The systems are routinely tested and certified by Statutory as well as Internal Auditors and cover all offices, plant facilities and key areas of business. The Internal Auditors independently evaluate the adequacy of internal controls and concurrently audit the majority of the transactions in value terms.

To further strengthen the internal control process, the Audit Committee has documented control procedures covering all aspects of key financial and operating functions. The Companys internal control systems provide for:

• Adherence to applicable accounting standards and policies

• Accurate recording of transactions with internal checks, prompt reporting and timely action

• Compliance with applicable statues, policies, listing requirements and management policies and procedures

• Review of capital investments and long term business plans

• Periodic review meetings to guide optimum utilisation of resources

• Effective use of resources and safeguarding of assets

The Audit Committee reviews the effectiveness of internal control systems, and also provides timely updates on operating effectiveness and controls to senior management team. A CEO and CFO Certificate, forming part of the Corporate Governance Report, confirms the existence and effectiveness of internal controls and reiterates their responsibilities to report deficiencies to the Audit Committee and rectify the same.

Our auditors carry out periodic audits as per an agreed internal audit programme. They bring to the notice of management, issues which require their attention and also highlight the severity of the issue. Corrective actions are then set in place. The internal auditors report is reviewed by the Audit Committee and placed before the Board of Directors for their consideration.

9.1 DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review, the Companys consolidated revenue from operations was Rs 577.59 Cr in comparison to previous year revenue of Rs 347.24 Cr. During the year under review Companys Profit after Tax (PAT) from discontinued operations of international subsidiaries was NIL which was र 103.55 Cr during the previous year ended 31st Mar 2018. Consolidated profit/loss after tax for the year ended 31st Mar 2019 was (Rs 13.14 Cr) (including 1007.12 loss from international subsidiaries) as against Rs 71.93 Cr (including profit of Rs 71.15 Cr from international subsidiaries) during the previous year ended 31st Mar 2018.

JMTs business operations has been consistently moving upwards, despite the dismal situation of the Auto Industry. JMT has managed to marginally increase its SOB and the saale has continued to maintain an upward trend in the face of major global slowdown.

10. FINANCIAL CONDITION

JMT Auto monitors its financial position regularly and deploys a robust cash management system. The Company has also been able to arrange adequate liquidity at an optimum cost to meet its business and liquidity requirements. The Company would like to thank the financial institutions, shareholders and other stakeholders for their continuous support.

11. HUMAN RESOURCES AND INDUSTRIAL RELATIONS

During the year, the Company delivered value to its customers and investors. This was made possible by the relentless efforts of each and every employee. The Company has developed a robust and diverse talent pipeline which enhances JMT Autos organisational capabilities for future readiness, further driving greater employee engagement. Our human resource program is focused on attracting the right talent, providing excellent on the job training opportunities, and finally giving them the growth opportunities consistent with their aspirations.

JMT Auto has always enjoyed strong industrial relations. The Company has a systematic grievance redressal system to further strengthen these relationships. This system encourages employees to share their views and opinion with the management. The Company reflects on this feedback and incorporates relevant changes into the existing policies, systems and processes.

12. STATUTORY COMPLIANCE

The Whole Time Director makes a declaration to the Board of Directors every quarter regarding compliance with provisions of various statutes as applicable. The Company Secretary ensures compliance with the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and compliance with the guidelines on insider trading for prevention of the same.

13. CAUTION STATEMENT

The above mentioned statements are only ‘forward looking statements based on certain assumptions and expectations. The Companys actual performance could differ materially from those expressed/projected depending upon changes in various factors. The Company does not assume any responsibility to any change(s) in forward looking statements, on the basis of subsequent developments, information or events etc.

Important developments that could affect the Companys operations include a downward trend in the domestic automotive industry, competition, rise in input costs, exchange rate fluctuations, and significant changes in the political and economic environment in India, environmental standards, tax laws, litigation and labour relations.

	BY ORDER OF THE BOARD
	for JMT AUTO LIMITED
	Sd/-
Date : 14.08.2019	(Sanjay Tiku)
Place : New Delhi	CEO & Whole Time Director
	(DIN NO - 00300566)