Rajratan Global Wire Ltd Management Discussions

Indian economy

Overview

The Indian economy grew by 7.8% in FY 23-24, up from 7.2% in FY 22-23, driven by strong performance in mining, quarrying, manufacturing and certain segments of the service sectors. India retained its position as the fifth-largest economy. The Indian rupee showed relative resilience, depreciating only 0.8% against the US dollar from Rs 82.66 to Rs 83.35. CPI inflation averaged 5.4% with higher rural inflation, while core inflation dropped to 4.5% from 6.2% due to lower global commodity prices.

Foreign exchange reserves hit a record USD 645.6 Billion. Indian companies maintained strong credit quality, supported by deleveraged balance sheets, domestic demand and government capital expenditure. UPI transactions rose by 56% in volume and 43% in value.

Growth of the Indian economy

Year	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	7.8

Growth of the Indian economy quarter by quarter, FY 23-24

Year	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	8.2	8.1	8.4	8.2

(Source: Budget FY24; Economy Projections, RBI projections, Deccan Herald)

Despite the lowest monsoon in five years and the driest August in a century, wheat production reached a record 114 Million tonnes, while rice production declined to 106 Million tonnes. Manufacturing sector output grew by 6.5% and mining sector growth reached 8.1%. Financial services, real estate and professional services grew by 8.9%. Real GDP for 2023-24 was estimated at Rs 171.79 Lakh Crore, growing by 7.3%, while nominal GDP was estimated at Rs 296.58 Lakh Crore. The gross non-performing asset ratio for banks fell to 3.2%. Exports were projected to reach USD 900 Billion, with merchandise exports between USD 495-500 Billion and services exports at USD 400 Billion. Net direct tax collection increased by 19% to Rs.14.71 Lakh Crore and GST collections grew by 11.7% to Rs. 20.2 Lakh Crore.

The agriculture sector growth slowed to 1.8% and the trade, hotel, transport, communication and broadcasting services segment grew by 6.3%. The automobile segment grew by 6-9%. The construction sector saw a growth of 10.7% and public administration, defense and other services grew by 7.7%. Gross value added growth was 6.9%.

Indias GDP reached USD 3.6 trillion with a nominal per capita income of Rs. 123,945. The Nifty 50 index grew by 30%, making Indias stock market the fourth largest globally with a market capitalisation of USD 4 trillion.

Foreign investment in government bonds surged and India ranked 63^rd in ease of doing business. Unemployment fell to 3.2%.

India entered a pivotal phase of accelerated urbanisation, industrialisation, household income growth and energy consumption.

Outlook: India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass USD 4 trillion in 2024-25.

Union Budget FY 24-25: The Interim Union Budget 2024-25 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology.

In 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence reported the highest allocation at Rs 6,21,541 Crore, accounting for 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Affairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India)

Global tyre industry overview

The global tyre market, valued at USD 232 Billion in 2023, is projected to grow at a CAGR of 4.11% during 2024-29. Increased vehicle production in developing countries and heightened competition among manufacturers are key growth factors. The industry adapts by collaborating with automotive original equipment manufacturers (OEMs), expanding online services and embracing digital transformation. The global tyre market is experiencing robust growth, reaching 2,388 Million units in 2023 and projected to hit 3,012 Million units by 2032, with a 2.5% CAGR during 2024-2032. Key drivers include safety awareness, technological advancements and new product launches. Automation and big data adoption have led to cost-effective, high-quality tyre production, fostering continuous industry growth. The market structure is consolidated, attracting new entrants due to low differentiation and switching costs. Emerging economies like China, India and East Europe significantly influence the tyre industry, with China leading as the largest market globally. India expects 7-9% growth, driven by domestic and overseas demand. The rising trend of electric vehicles (EVs) is noteworthy, incentivises by global governments, with an expected 15-30% share of total vehicle sales by 2030.

Outlook

The tyre markets future is promising, with a projected 4.11% CAGR during 2024-29, driven by efficient vehicle trends, increased production in developing countries and a focus on digital transformation. Despite challenges, the industry remains resilient, catalysed by global vehicle production trends, technological innovations and sustainability considerations.

(Source: marketeladvisors.com, imarcgroup.com, expertmarketresearch.com, globenewswire.com)

ASEAN tyre industry overview

The South East Asia tyre market, valued at USD 12.7 Billion in 2022, is projected to grow at a robust CAGR of 6.28%. This growth is driven by factors such as the increasing number of vehicles, economic growth and expanding automotive industry. Countries like Indonesia, Thailand and Malaysia are experiencing a surge in demand for both new and replacement tyres due to burgeoning automobile sectors and rising per capita income.

Replacement tyres play a significant role, catalysed by the growing vehicle count and changing weather conditions, necessitating specialised tyres. Despite the opportunities, challenges exist. Fluctuating raw material prices affect production costs, impacting tyre pricing. Stringent environmental regulations require sustainable practices, adding complexity to market dynamics.

Key drivers include economic growth, the thriving automotive industry, consumer demand for high-performance tyres and a shift towards eco-friendly options. Rapid urbanisation and infrastructure development also boost the market, particularly for commercial tyres.

The Thailand tyre market, valued at USD 10.82 Billion in 2022, is expected to grow at a 6.12% CAGR during 2023-2029, reaching USD 15.45 Billion. The key driver is the increasing demand for eco-friendly tyres, supported by environmental awareness and government sustainability initiatives.

Radial tyre adoption is rising due to superior performance, fuel efficiency and longevity. Online tyre sales are growing with the popularity of e-commerce. Specialised tyres for off-road, sports and luxury vehicles are gaining attention. The market is shifting towards premium tyre brands, reflecting a consumer preference for quality and safety.

Outlook

The ASEAN tyre market is projected to grow at a CAGR of around 6.28% between 2023 and 2028. With continuous innovation and evolving technology expected to provide further opportunities. However, manufacturers must navigate challenges related to raw material costs and environmental regulations to capitalise on the markets potential. The outlook is positive, driven by the regions economic prosperity and the growing demand for high-quality and sustainable tyres.

(Source: techsciresearch.com, blueweaveconsulting.com)

Indias tyre industry overview

The Indian tyre market, at 196.3 Million units in 2023, is set to grow at a 3% CAGR, reaching 253.9 Million units by 2032. The industry aims to double revenue to USD 22 Billion by FY 31-32, up from USD 9 Billion in FY 21-22.

The Indian tyre industry targets over USD 5 Billion in exports, aiming for a top-3 global hub by 2030. With current exports at USD 3 Billion, comprising over 25% of industry turnover. Key drivers include rising vehicle demand, government infrastructure investments and a growing population of vehicles supporting tyre demand in the replacement market. The industry is diversifying with smart and electric vehicle tyres, expanding into premium segments.

Recent report predicts a 6-8% surge in Indias tyre demand in FY 23-24. Improved product mix and stable input prices are expected to strengthen industry margins by 200-300 basis points. The original equipment market (OEM) segment is set to expand by 7-9% YoY in FY 23-24, with mid-single-digit growth anticipated for the replacement segment.

Domestic tyre industry revenues grew 19.5% in FY 22-23, following a 26% expansion in FY 21-22, indicating positive growth trends.

(Source: imarcgroup.com, crisil.com, expertmarketresearch.com, ibef.org, Thehindubusinessline.com)

Government initiatives

By 2026, the production-linked incentive

(PLI) scheme for the automobile and auto components industry is expected to attract over Rs. 42,500 Crore in investments, increase production by over Rs. 2.3 Lakh Crore and create more than 7.5 Lakh jobs, enhancing Indias share in the global automotive market.

The faster adoption and manufacturing of electric vehicles (FAME) India Scheme supports EV charging infrastructure expansion, with Rs. 2,671.33 Crore allocated for FY 24-25 to subsidise EVs until March 31, 2024. Despite a reduced budget, FAME II has subsidised nearly 1.2 Million two-wheelers, 1,41,000 three-wheelers, and 16,991 four-wheelers. A new scheme will support EV sales from April 1, 2024.

The National Electric Mobility Mission Plan (NEMMP) 2020 and the FAME India scheme, with Rs. 10,000 Crore allocated over three years starting April 1, 2019, prioritise public and shared transportation electrification. The scheme supports 7,000 e-buses, 5 Lakh e-3 wheelers, 55,000 e-4 wheeler passenger cars and 10 Lakh e-2 wheelers, with Rs. 800 Crore for 7,432 public EV charging stations.

The PLI Scheme for automobile and auto components, with a Rs. 25,938 Crore budget over five years (FY 22-23 to FY 26-27), aims to enhance the manufacturing of advanced automotive technology (AAT) products. It focuses on localising production for zero-emission vehicles (ZEVs), including battery electric vehicles and hydrogen fuel cell vehicles.

(Source: investindia.gov.in, economictimes.com)

Tyre manufacturers are directing investments to enhance their production capacities in response to growing customer demand. The planned capital expenditure encompasses diverse initiatives, including expanding manufacturing capacity, enhancing factory efficiency, modernising operations, upgrading technology and investing in research and development.

Company overview

Rajratan Global Wire Ltd (Rajratan) is a globally recognised manufacturer of essential bead wire for tyre production.

Since the early 1990s, Rajratan has supplied this crucial component to exclusive clients worldwide. With a total capacity of 1,32,000TPA in India, including a major facility in Pithampur, Indore, Madhya Pradesh, the Company is the sole bead wire manufacturer in Thailand with a 60,000 TPA production facility. Rajratan has also established a greenfield unit in Chennai, Tamil Nadu, with a capacity of 60,000 TPA.

Highlights, FY23-24

On standalone basis

The companys standalone revenue were Rs. 55646 Lakhs in FY 23-24 as against Rs. 61241 Lakhs FY 22-23. The Profit before tax for the FY 23-24 was Rs. 7493 Lakhs as against Rs. 9658 Lakhs FY 22-23. The profit after tax was Rs 5583 Lakhs in FY 23-24 compared to Rs 7088 Lakhs in FY 22-23.

Consolidated revenues

The Companys consolidated revenue were Rs 89045 Lakhs in FY 23-24 compared to Rs 89537 Lakhs in FY 22-23. The Companys profit after tax decreased from Rs. 7088 Lakhs in FY 22-23 to Rs. 5583 Lakhs in FY 23-24. The EBITDA* decreased from Rs 11,801 Lakhs in FY22-23 to Rs. 9778 Lakhs in FY 23-24.

*Other income excluded from EBITDA to show core operating efficiency.

SWOT analysis

Strengths

Location: The strategic location of our Chennai plant will strengthen our business. Its proximity to customers, particularly in the automobile industry, will ensure timely and just in time product supply.

Proximity: With most tyre factories within an overnight road distance from the Chennai facility – four major customers within an hours reach – the Company is ideally located to deepen customer engagement. Close proximity to customers also help in reducing overall carbon footprint.

Regional hub: South India, where our facility is situated, accounts for around 65% of the countrys tyre production, marked by ten factories within a 300-Km radius.

Exclusive: Bead wire competitors are not present in and around Chennai, strengthening a business advantage.

Strategic: The Chennai facility and port proximity will facilitate timely raw material import and end product export, making it a platform for the Companys global ambition.

Vendor relationships: The Chennai facilitys proximity to a principal raw material supplier in South India has streamlined resource procurement and supply chain.

Weakness

Talent development challenges: Building a team of experienced professionals at our Chennai facility poses a challenge. Establishing a competent management team may require time and resources.

Opportunities

Global expansion: The presence near the Chennai port will enhance the Companys competitiveness as a global supplier from India.

Riding customer growth: The expansion by tyre companies presents opportunities for volume and revenue growth.

Tyre industry growth: The PLI scheme attracting tyre giants like Michelin, Bridgestone, and Goodyear presents a significant opportunity. Yokohamas Rs. 3,000 Crore investment in new Indian plants will boost domestic production and jobs. Aligning with the Modi administrations EV policy, this initiative will increase demand for tyre bead wire as India transitions to electric vehicles, involving major players like Tesla and Vinfast. (Source: economictimes.com)

Threats

Policy changes: Any alteration in government policies pertaining to import tariffs and anti-dumping duties could threaten viability.

Increased competition: The entry of competitors poses a threat to market share and profitability.

Risks and concerns

The Companys operations include risk management and the management is actively involved in risk management and mitigation. Due to the nature of its operations, the Company is exposed to a variety of risks that may arise as a result of environmental, operational, political, legal, human and other factors. On the other side, the Companys risk management strategy is governed and overseen by the Risk Management Committee. The Committee monitors the mitigating measures and regularly assesses the major hazards.

Risks

Competitive and cost pressure risk

Price pressures and competitor capacity expansions impact realisations and profitability. Increased import duty on steel products has raised raw material costs (wire rod).

Mitigation

The Company responds with speed to evolving markets, focusing on enhancing customer value through quality and timely products and services. The Company will moderate business costs by proactively engaging with suppliers, diversifying sourcing, and protecting its competitiveness to remain viable across market cycles.

Supply chain risk

Increase in price and import cost of raw materials, energy and other overheads Supply disruptions

Description

Geopolitical unrest and inflationary pressures are driving up raw material and logistics costs, directly impacting production costs.

Mitigation

The Company is focused on sourcing local raw materials to cut costs for specialised products without compromising quality. The Company has implemented a strategic approach to supply customers from India or Thailand based on lower raw material and overall production costs. This includes the adoption of long-term contracts with supply partners, a just-in-time approach and effective freight control.

Financial risk

Foreign currency fluctuations Interest rate volatility

Liquidity crisis

Description

Rising inflation, currency instability, interest rate fluctuations and liquidity crises may adversely affect revenue, profitability and capital expenditure plans.

Mitigation

The Company employs robust forex management strategies and emphasises domestic sourcing of raw materials. Establishing strong ties with various banks and financial institutions enables the Company to mitigate risks and secure loans at favourable interest rates. Prioritising a balanced financial stance, the Company ensures ample liquidity for both current working capital needs and future capital expenditures.

Operational risk

Technology gap Equipment downtime

Description

Gaps in technology adoption within operational activities could hamper production efficiency and quality control measures, consequently affecting output. Frequent disruptions in operational workflow may lead to delays in production and order fulfillment.

Mitigation

The Company has adopted advanced digitisation to improve its operational system, providing real-time information in the event of potential or actual breakdowns.

Utilising JH Step 1 qualified machines, the Company maintains a robust overall equipment effectiveness (OEE) level, preventing substantial disruptions in the production process.

Environmental

Climate change

Shortage of natural resources

Description

Production processes in the manufacturing industry are intricately linked to environmental factors, such as global warming and pollution. Unfavorable climate changes and shortages of natural resources, including water, energy, or crude oil, could lead to production halts.

Mitigation

The Company has established a strong system in Thailand, with 85% of raw materials being sourced from recycled steel, showcasing a commitment to sustainability. The Company actively recycles chemicals to reduce industrial waste. In terms of water usage, 80% of the water used in the production process is recycled. The Company collaborates with global clients to develop environmentally friendly tyres for original equipment manufacturers (OEMs).

Social and safety risk

Accidents Quality standard

Description

Workers in the manufacturing industry face a higher risk of workplace accidents. Besides, maintaining essential quality standards during production is crucial, as any lapses could harm client relationships.

Mitigation

The Company has successfully established a dust and fume-free shop floor, ensuring a clear vision and preventing accidents, while also demonstrating a strong commitment to the 5S strategy. Continuous research and development efforts are in place to elevate the quality of output, accompanied by the implementation of high-quality management systems to improve processes and delivery. This has resulted in a reduction in consumer complaints.

Regulatory and legal risk

Government policies

Legal factors

Description

Ever-evolving government and legal regulations introduce constraints that could disrupt a businesss operations.

Mitigation

The Company consistently monitors changes in regulations and policies, taking timely actions to ensure compliance. Investments in improved management systems have enhanced adherence to government rules and policies, leading to better overall compliance. The Company maintains continuous engagement with relevant authorities to stay informed and responsive to regulatory requirements.

Market and industry risk

Economic instability, demand fluctuations, stringent regulations and environmental concerns may impact the automotive industry, tyre demand and business expansion. Geopolitical instability and potential recessions in major economies like the US and Europe could further exacerbate these challenges.

Mitigation

The Company is broadening its customer reach by entering new markets in Southeast Asia and Europe and focusing on expanding its existing client base. To counter declines in revenue and profitability, the Company is optimising manufacturing costs through improved inventory and logistics management. The Companys expansion efforts in Europe and new customer acquisition in Korea and Vietnam are complemented by obtaining environmental impact assessment approval for capacity expansion in Thailand. The ‘Make in India initiative and the production-linked incentive (PLI) scheme are expected to drive growth in the manufacturing sector, with a focus on electric vehicles and sustainable mobility positioning the Company to benefit from these industry shifts.

Financial overview

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations 2018, the Company is required to provide details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor. The key financial ratios are given below:

Strategic objectives

	Standalone			Consolidated
Ratios	FY 23-24	FY 22-23	Change in %	FY 23-24	FY 22-23	Change in %	Reason for change
Debtors Turnover	5.68	5.65	0.45	6.12	5.64	8.50	Improved on account of faster recovery from debtors
Inventory Turnover	8.03	9.10	(11.81)	7.37	6.55	12.48	Increase on account of decrease in average inventory
Interest Coverage Ratio	5.98	8.03	(25.50)	5.80	8.75	(33.74)	Decrease on account of Lower PBDIT in the current year
Current Ratio	1.29	1.25	3.17	1.23	1.25	(1.07)	Decrease on account of Investments of profits into Capex
Debt Equity Ratio	0.38	0.38	0.33	0.39	0.39	(0.72)
Operating Profit Margin %	17.81	19.61	(9.19)	14.72	18.46	(20.25)	Decrease on account of lower realisation and higher cost
Net Profit margin %	10.03	11.57	(13.31)	8.07	11.18	(27.86)	Decrease on account of lower realisation and higher cost
Return on Net worth (%)	15.89	23.15	(31.36)	12.87	24.71	(47.93)	Decrease on account of lower realisation and higher cost

Human resource

Rajratan places a strong emphasis on its workforce, considering employees as pivotal to its sustained success. The Company is dedicated to enhancing the professional skills of its personnel through regular training programs, focusing on both technical and behavioural skills, as well as fostering excellence in business, management and leadership. Providing ample opportunities for career advancement, Rajratan also emphasises its core values and code of conduct. The Company prioritises a safety-conscious culture, implementing programs and procedures to safeguard the health and well-being of its employees. Rajratan aspires to create an inclusive workplace that embraces individuals from diverse backgrounds, acknowledging differences in preferences, culture and gender. The Company had more than 677 employees on its payrolls as on March 31, 2024.

Internal control systems and their adequacy

The Companys internal audit system has been reviewed and updated to ensure that assets are safeguarded, established regulations are followed and outstanding issues are promptly remedied. The audit committee regularly looks over the internal auditors reports, notes any findings from the audit and takes corrective action, whenever necessary. To ensure the proper implementation of the internal control systems, it maintains constant communication with external as well as internal auditors.

Disclaimer

In accordance with applicable laws and regulations, certain comments in the management discussion and analysis report that include the Companys goals, projections, expectations and estimates may be deemed to be forward-looking. The remarks in this management discussion and analysis report may not exactly match with what is explicitly stated or implied. Raw material availability and prices, cyclical demand and pricing in the Companys main markets, changes to the governmental regulations, tax regimes, currency markets, economic developments in India and the nations with which the Company conducts business, as well as other incidental factors could have a significant impact on the Companys operations.