MRF Ltd Management Discussions

(Within the limits set by Companys competitive position)

In the year gone by, Global economy delivered better than expected growth despite geopolitical issues casting a shadow on the world. World economy moved towards a soft landing with growth holding up and inflation declining. MRF continued its industry leading growth in the domestic market.

Economic growth was steady during the year despite monetary tightening, warnings of recession and impact of climate related events. Global trade was muted with increased geo economic fragmentation, trade restrictions and lower consumption arising from tight financial conditions. Emerging economies performed better than the developed world. There was steady reduction in inflation in both developed and emerging economies prompting Central Banks to pause interest rate hikes, though inflation is still above the target in most economies. Geo political issues continued causing disturbance to the world with the continuing Ukraine war, tensions in West Asia and disturbances to commercial shipping in the Red Sea.

International Monetary Fund (IMF) estimates show that World Economy grew by 3.2% in calendar year 2023 bettering its own earlier estimates. IMF estimates that growth in 2024 would be similar to 2023. Inflation is expected to decline steadily. Geopolitical disturbances could impact inflation trajectory and delay central Bank policy easing, with adverse effects on global growth. Rate cuts by Central Banks is now expected to be in the 2nd half of 2024.

Market & Industry Overview

Growth surprised on the upside for Indian economy over the quarters, driven by investment. Despite a difficult external sector and weakness in agriculture arising from a patchy monsoon, Indian economy performed well riding on the strength of its domestic demand. Government of Indias advance estimates of Gross Domestic Product (GDP) for 2023-24 shows a growth at 7.6%. India continued to remain the fastest growing economy. Growth was led by manufacturing and construction. Private consumption was weak as in the previous year, owing to lower rural demand while urban demand was robust. There are early signs that private investment is picking up, responding to growth in the economy.

Indias merchandise exports declined by 3% while total exports, including services, was at the same level as the previous year. Geo political issues and weakened consumer demand impacted exports. But trade deficit was lower by more than 9% as imports too contracted. Exports of electronics were a bright spot. Non-food Inflation fell by 2.5% during the year (April, 2023 to January,2024) while food inflation rose by 0.40% in the same period. India has managed to deliver on both growth and inflation management. The Government struck to the path of fiscal consolidation in the vote on account that was presented. Continuing with the thrust on capex, capital expenditure outlay was hiked by 11%. Indian Government securities is set to be included in the emerging markets bond index by Morgan Stanley and other financial institutions, reflecting confidence in the India growth story and the financial system. This move paves the way for dollar inflows into the countrys sovereign debt market and reduction of borrowing costs in the economy. India Meteorological Department (IMD) has projected an above normal monsoon for the year which should improve rural growth and consumption. Growth in financial year 2023-2024 came from Government spending and high end consumption with only a marginal growth in agriculture. A good monsoon should add to the growth of the economy in financial year 2024-25. Reserve Bank of India ("RBI") has projected financial year 2024-25 GDP growth at 7% while IMF has projected the same at 6.8%. Global car sales grew by 10% in calendar year 2023 after a flat growth in 2022. Electric car sales grew more than a third. Adoption of Electric Vehicles (EV) continued across markets. High vehicle costs and high interest rates were a pain point for the Industry. Indian automobile industry performed well in financial year 2024 with domestic sales showing a growth of 12.5% (source: Society of Indian Automobile Manufacturers (SIAM)). Passenger vehicle segment and two wheeler segment led the growth while commercial vehicles managed to grow only marginally. Tractors were a weak spot as irregular rains impacted demand. In the passenger segment, share of entry level vehicles continued to shrink. Demand revival was seen for entry level two wheelers during festive season and also in the last quarter of financial year 2023-24.

However, exports were weak with many markets facing geo political and monetary issues. There was sizeable drop in sales in commercial vehicles, two wheelers and three wheelers while export of passenger vehicles grew marginally (source: SIAM). The production of Medium and Heavy Commercial Vehicle (M&HCV) during the year has seen a very marginal growth. The bus sales that was impacted during the Covid period is bouncing back. The trailer segment is also seeing a growth every year fuelled by loading restrictions in many markets. Electric vehicles have till now been predominantly in the bus segment operated by the state transport undertakings. Various regulatory norms are expected to be implemented during the year 2024-25 and the Original Equipment Manufacturer (OEMs) have been gearing up for the same. As a result of this, the tyre performance criteria of OEMs have undergone considerable changes. Quite a few new products were launched by us both in the bias and radial segment. This has helped us further consolidate our position with both the OEM and in after sales markets.

The current indications are that the first half of 2024-25 would be sluggish and even with an anticipated recovery in the second half, the OEM production is expected to continue to be flat if not marginally negative. The passenger vehicle production has seen a growth of 7% in the year ended March,2024. Domestic sales also recorded yet again the highest ever sale in a financial year. The segment continued to witness preference for Sports Utility Vehicles (SUVs), which has now a share of more than 50% in overall sales. Despite price increases, better supplies and sustained consumer demand, especially for SUVs, supported sales. The waiting period for many car models have come down and the stocks have improved in the dealerships. The shift to electric vehicle has intensified few years ago and continues this year as well.

Two wheeler production showed growth for the second consecutive year. Motorcycle and scooter production saw good growth during the year. However, it is yet to reach the pre-Covid levels. In motorcycles, the 125 cc and above segment is showing a higher growth in production and currently accounts for more than a third of the total production. A slew of product launches by various OEMs were seen in the segment with higher cubic capacity (cc). Growth has been fuelled by domestic sales and exports continues to be sluggish. The year also saw the entry of one of the prominent OEMs into the 100 cc motorcycle segment. Your Company continues to be a preferred choice of fitment of OEMs in most of their new launches. Many OEMs increased their fitment of our tyres on their existing models also. During the year, the Company launched ‘W rated Steel belted motorcycle radial tyres for the high performance segment, under the brand name ‘Steel Brace. The Company has also further strengthened its after market portfolio with new products both in the motorcycle and scooter segment. During the year, the government reduced the subsidies under the FAME 2 scheme for electric vehicles which had a short-term impact on their sales. Subsequently the tenure of the FAME 2 scheme also ended in March,2024. The new Electric Mobility Promotion Scheme has been announced for the period 1st April, 2024 to 30th July, 2024.

Tractor Production had shown a decline of 11% in the financial year 2023-24. A trend was observed among Tractor OEMs of bringing out newer lower HP and light weight tractor models. Tractor OEMs have started planning for electric tractors in the near term. During the year, the Company was able to improve and consolidate its market share in Tractor OEMs. Farm mechanization is growing in India, with increased usage of laser leveller, rotavators, reapers, paddy transplanters and harvesters among farmers. This can lead to significant usage of higher HP tractors in India in the near future. In the replacement segment, your Company continues to be the most preferred brand in the market place. Replacement sales had shown considerable buoyancy this year. IMD has forecasted an above normal monsoon during the coming season which would help revive the farming sector in financial year 2024-25. Tyre Industry posted a moderate growth in the financial year 2023-24 in comparison to the previous year. Recovery in the second half of the year helped Exports to retain previous years figures. Further, lower raw material prices enabled the industry to show improved profit margins.

Product wise Performance

During fiscal 2023-24, your Company achieved a total income of 24,986 crores. There was an increase in production across all Product Groups, except Farm. In the heavy commercial vehicle product group, there was an increase of 9% over the previous year while light commercial vehicle tyres increased by around 10%. Small commercial vehicle tyres increased by 12%. Passenger & SUV showed a growth of 3%. The farm product group de-grew by 6%. The motorcycle and scooter product group grew by 17% and 21% respectively. The Off the Road (OTR) product group grew by 13%.

Exports

Exports business for the year 2023-24 grew in many of the key markets. However, the overall growth was dragged down due to unfavourable regulatory restrictions and a severe shortage of forex in few other markets. Towards the latter half of the year, the Red Sea crisis impacted the global shipping industry and led to a steep rise in ocean freights and container availability, which also affected export shipments.

The exports turnover for the year 2023-24 was Rs. 1874 crores as against 1866 crores the previous year.

Markets in Far East and the African region showed resilience. In spite of severe price competition, the Company was able to maintain its volumes and revenues in major markets. Categories of truck radial, light truck, farm, OTR and 2 & 3 wheeler tyres showed good growth in these markets and consumer preferences continue to be high. Your Company also launched a range of farm radial tyres at the Agritechnica show in Hanover, Germany in November, 2023. In the year ahead, the Company will focus on maintaining its growth in our existing strong markets and substantially develop the emerging markets.

Discussion on Financial Performance with respect to Operational Performance

( Crores)

	2023 - 2024	2022 - 2023
Revenue from operations	24674	22578
Other Income	312	248
Total Income	24986	22826
Profit before tax	2739	1119
Provision for tax	698	303
Profit after tax	2041	816

The revenue from operations of the Company for the 2023-2024 stood at Rs.24674 crores against Rs.22578 crores for the previous year ended 31st March,2023. During the year ended 31st March, 2024, the earnings before interest and depreciation (EBIDTA) stood at Rs. 4480 crores as against Rs. 2666 crores in the previous year ended 31st March,2023. After providing for depreciation and interest, the profit before tax for the year ended 31st March, 2024 is Rs.2739 crores as compared to Rs.1119 crores in the previous year ended 31st March 2023. After making provision for income tax, the net profit for the year ended 31st March, 2024 is 2041 crores as against Rs.816 crores in the previous year ended 31st March,2023.

Key financial Ratios

In accordance with Listing Regulations, there are no significant changes (25% of more) in Debtors Turnover, Inventory Turnover and Current Ratio as compared to previous year. The details of other Key Ratios where there is a change of 25% or more is given below:

Sr. No.	Particulars	2023-24	2022-23	Change	Explanation
1	Interest Coverage Ratio	17.24	10.20	69%	Increase due to increase in EBITDA for current year
2	Debt Equity Ratio	0.05	0.07	-29%	Decrease due to increase in shareholders equity and reduction of long term debt
3	Operating Profit Margin (%)	11.12%	4.82%	131%	Increase due to increase in EBIT for current year due to raw material price reduction
4	Net Profit Margin (%)	8.17%	3.58%	128%	Increase due to increase in current year profit after tax
5	Return on Net Worth (%)	13.19%	5.77%	129%	Increase due to increase in current year profit after tax

Opportunities and Threats

Indian economy displayed remarkable resilience to post better than expected growth in financial year 2024 and is well poised to carry the momentum into the current year. Above average monsoon forecasted should improve rural demand and will be a tailwind for high growth in the economy. Inflation is moving towards RBIs target of 4% even though food inflation is sticky. Possible reduction in interest rates by RBI in the second half would further aid growth and capital spend. Private sector capital capex should get a boost from demand increase and potential interest cost reduction.

Food inflation has not shown a meaningful improvement in the last year. Extreme weather events can keep food inflation elevated which may influence RBIs decision on interest rates. Geo political issues can cause price of Oil and other commodities to spike up. In financial year 2024, Corporates benefited from lower commodity prices. Commodity and energy prices have spiked in recent weeks. Growth has so far been mainly driven by Government investments but the pace of public investments is set to slow as Government lowers its fiscal deficit target. Sustaining of overall growth hinges on how private investments pick up. Key things to look out for would be a broad based improvement in consumption growth and meaningful improvement in private investment.

Outlook

Commercial vehicles is likely to show muted growth in the current year. Growth of passenger vehicles may moderate considering the high base and strong growth in the last 3 years. Industry body SIAM expects a 3 to 5% growth in financial year 2025. Two wheeler sales is showing signs of improvement and this may continue into the current year, considering favourable monsoon and likely improvement in rural demand. Capex plans announced by leading auto companies point to higher levels of production in the years to come. Impact on the tyre industry would also be similar as outlined above.

Internal Control Systems and their Adequacy

Your Company has established internal control systems commensurate with the size and nature of business. It has put in place systems and controls across the Company covering various financial and operational functions. Company through its own Internal Audit Department carries out periodical audits at various locations and functions based on the audit plan as approved by the Audit Committee. Some of the salient features of the Internal control systems are:-

(i) An integrated ERP system connecting all plants, sales offices, head office, etc.

(ii) Systems and procedures are periodically reviewed to keep pace with the growing size and complexity of Companys operations.

(iii) Assets are recorded and system put in place to safeguard against any losses or unauthorized disposal.

(iv) Periodic physical verification of fixed assets and Inventories.

(v) Key observations arising out of the Internal Audit are reviewed at the Audit Committee meeting and follow up action taken.

Risks and Concerns

Global economy continue to be affected by the geo political tensions, but the growth delivered was better than expected in the year gone by, despite monetary tightening, warnings of recession and impact of climate related events. Geo political issues continued to pose for us micro and macro level economic structural challenges with the continuing Ukraine war, Israel-Iran tensions in West Asia and disturbances to commercial shipping in the Red Sea. These could result in impacting demand both in the domestic and export markets. Moreover, climatic changes continue to affect availability of natural rubber during the year resulting in increase in natural rubber prices. Uncertainty remains with regard to the price of crude oil which also impacts the price of raw materials used by the tyre Industry. IMD has projected an above normal monsoon for the year which should improve rural growth and consumption. Key things to look out for during the year would be a broad based improvement in consumption growth and meaningful improvement in private investment. Despite the above concerns, the Company hopes to continue reporting growth based on its strong brand and products.

Human Resources

MRF is a value driven organization and the Company has a rich organizational culture rooted in its core values of respect for people and belief in empowerment.

The core value underlying the corporate philosophy is "trusteeship" and "proprietary interest". In dealing with each other, the values which are at the core of the HR Philosophy ie., trust, teamwork, mutuality and collaboration, objectivity, self-respect and human dignity are upheld. The management is committed to the development and growth of its people and the core focus is on Human Resources for its continued success. The Company owes its success and dominance in the market to the dedication and hard work of the employees who have overcome the daunting challenges of the market and the ever increasing quality expectations, customer preferences, across the length and breadth of the country as well as in overseas market. The Company successfully navigated through the challenges posed during the year and this was made possible by the team synergy and efforts of each employee who stood up to the challenges. Efforts have been taken for building agile, resilient and adaptive Human Capital System.

Your Company focused on hiring the best resources available in tune with our growth needs, retaining and developing its existing talent pool to strengthen its human capital for meeting the future challenges. The Company leverage human capital for competitiveness by nurturing knowledge, entrepreneurship and creativity.

The human resource development is focussed on the Companys mission to have competitive edge in technology and excellence in manufacturing. All the training programs are designed and tailor made to meet these specific requirements. We continue imparting teambuilding and collaboration training to the workmen to enhance the team cohesiveness. Leadership training for union leaders and opinion makers also continued throughout the year, thereby keeping with the commitment of shaping the future of our plants.

The Company maintained cordial and harmonious Industrial relations in all its manufacturing units through our various employee engagement initiatives and focus on improving the work culture, enhancing productivity and enriching the quality of life of the workforce and maintaining supremacy in the market. The total employee strength as on 31st March 2024 was 19,209.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, expectations or forecast may be forward looking within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include global and domestic supply and demand conditions affecting selling prices of finished goods, input availability and prices, changes in government regulations, tax laws, economic developments within the country and other factors such as litigation and industrial relations.

On behalf of the Board of Directors

	K M MAMMEN
Chennai	Chairman & Managing Director
03rd May, 2024	DIN: 00020202