Viaz Tyres Ltd Management Discussions

Viaz Tyres Limited, an emerging player in the Indian tyre industry. The Company is committed to offering customers the highest quality products to meet their constantly evolving needs. With its wide product range, VIAZ caters to diverse customer segments, including OEMs and replacement markets. Living its purpose and ethos, the Company has been committed to making mobility safer and smarter with its world-class products marking its presence over multiple countries worldwide. The Company manufactures high-performance tyres for a broad range of vehicles. Driven by its purpose and adoption of smart technologies to offer value proposition to its customers, Viaz now, is a well-established brand in the tyre industry.

(a) Industry structure and developments.

The India tyre market size reached 188.9 Million Units in 2022. Looking forward, it is expected the market to reach 225.6 Million Units by 2028, exhibiting a CAGR of 3% during 2022-2028.

India represents the fourth largest market for tyres in the world after China, Europe and the United States. In India, the market is currently being driven by the increasing radialization of tyres, especially in buses and trucks. Moreover, the tyre industry consists of a vast consumer base; they are used in all types of vehicles which include passenger cars, buses, military vehicles, motorcycles, trucks, etc. The demand for tyres is primarily catalyzed from two end-user segments - OEMs and the replacement segment. The replacement market currently dominates the tyre market accounting for most of the total sales. Demand by the OEM segment is driven by new automobile sales trends, whereas the replacement market is linked to the usage patterns and replacement cycles. The market for tyres is quite concentrated in India, with the top 10 manufacturers accounting for around 80 percent of the total market share. MRF, Apollo Tyres and JK Tyres currently represent the top players in this market.

(b) Opportunities and Threats.

Forecast of a normal monsoon for the fourth year in a row will be a positive for the rural sector and the economy as a whole. High agricultural prices arising from the geo political situation should be a boost to the rural sector. Higher Government spend on infrastructure should be a growth positive for the related sectors. Production Linked Incentives and Free Trade Agreements will be a boost to manufacturing in the long run. The high inflation would have a negative impact on consumption. RBI has increased interest rates which will increase cost of Funds and may curb demand. Central Banks the world over are fighting inflation through interest rate hikes and other monetary measures which might curb growth and international trade. This could be a dampener for Exports. The continuing war in Ukraine will be an uncertainty and will keep commodity prices high. For India, the year began with the 2nd Covid wave, with brief lockdowns, which impacted business performance in Quarter 1 of financial year 2021-22. Vaccinations against Covid helped in the economic recovery. The Omicron wave that came later in the year had a milder impact on Q3 and Q4 of financial year 2021-22. While releasing the 3rd Quarter GDP numbers in March, 2022, the government estimated the full year GDP growth at 8.9%. This would lift the GDP above the pre covid levels. 3rd Quarter GDP numbers showed that private consumption is just about higher than pre pandemic levels while contact intensive services were still below the pre pandemic levels. Higher inflation also has impacted private consumption. The Indian Economy in financial year 2022-2023 reflected investment led growth while consumption demand was lagging. GDP growth decelerated over the Quarters reflecting base effect and slowing growth towards the end of the year. Tax revenue was buoyant with both direct and indirect taxes showing robust growth, which helped the government in meeting the fiscal deficit target. Tax buoyancy resulted in the tax to GDP ratio of 11.7%, highest in 23 years. Export growth was a bright spot with merchandise exports crossing $ 400 Bln. Inflation was elevated through the year with wholesale price inflation remaining in double digits for 12 months in a row. Retail inflation hit 7% in March, 2022, well above the RBIs tolerance band of 2%-6%. This plus the uncertainty around the trajectory of inflation prompted RBI to resort to an off cycle rate hike of 40 basis points. Inflation is expected to remain high and further rate hikes by RBI is to be expected. Lending rates are set to rise across the economy. During the year, the government executed a Comprehensive Economic Partnership Agreement (CEPA) with UAE, Indias third largest trade partner, this being the first major Trade Agreement in a decade. This was followed by an interim Economic Cooperation and Trade Agreement (ECTA) with Australia. Talks with European Union is scheduled for a Free Trade Agreement. The Trade Agreements should improve Trade and Exports and would impact growth positively in the long run. RBI in April,2022 projected financial year 2022-23 GDP growth at 7.2% while IMFs estimate is higher at 8.2%. Forecast for GDP growth have been toned down in recent weeks given the outlook on inflation and interest rate movements. Global growth and trade are trending lower, which could slow down Indias Export growth. Higher commodity prices will continue to impact consumption and investment, translating to lower growth. RBI, which had prioritized growth over inflation over the last 3 years, is now targeting inflation ahead of growth. Government will need to step up public expenditure to maintain the economys growth in the face of weak private demand. Globally, Automoble Industry was impacted by shortage of semi conductors and other components, leading to temporary shut down of Plants. Post the war in Ukraine, availability of several key raw materials for the industry that comes from Russia and Ukraine have been impacted. Logistics costs have also hugely increased for the industry. The year has been defining for our Auto Industry in its movement towards Electric vehicles. Industry insiders feel that demand generation for electric vehicles is no longer a problem as managing the supply chain is. Government announced in the Budget that it would introduce a Battery swapping policy, following which NITI Aayog released a draft Policy. This is expected to give a boost to Electric Vehicles in India. There was a huge increase in the demand for CNG Vehicles due to spiraling energy prices and adequate infrastructure. The response to PLI scheme for the Auto Industry exceeded expectations. The scheme has attracted an investment of 74,850 Crores against the target estimate of 42,500 Crores over a 5 year period. The scheme will aid in the countrys movement to a manufacturing destination, besides strengthening the supply chain through its emphasis on value addition. After a weak 2020-21, there were signs of recovery in the Medium and Heavy Commercial Vehicle (M&HCV) segment towards the second half of 2021-22. The infrastructure industry showed a faster growth and hence the demand for Tippers started picking up. With more industries opening up and a good harvest season, the 4th quarter showed recovery in the haulage segment too. However the bus segment continued to be on the weaker side. The overall M&HCV production increased by about 50% over 2020-21. However it is far below the peak year of 2018-2019. With a good demand expected in both the construction and haulage segments, the year 2022-23 could see improved production. The Vehicle scrapage policy which is likely to be rolled in by 2023-24 is expected to provide new opportunities in the State transport (STU) bus segment also. The passenger vehicle production has seen a growth of 19% in the year ended 2022-23, showing a good recovery after the double digit decline in financial year 2020-21. The segment continued to witness preference for Sports Utility Vehicles (SUVs), coming at the expense of hatchback and Sedans. While there was huge pent up demand on the back of the preference for personal mobility, the segment was hit by supply side issues arising from shortage of components like semiconductor chips. This has resulted in long waiting period for many car models ranging from 3-4 months and in some models going upto 10 months. The other challenges affecting the sector are the increasing cost of raw materials and logistics cost. The high fuel prices due to geo political issues may impact the demand and usage of personal vehicle in the short term. But the passenger segment is better poised to handle cost increases than other segments considering the order backlog. A major shift seen in the passenger segment in 202-23 was the movement towards Electric vehicles [EVs]. Original Equipment Manufacturers (OEMs) are investing in EV models and most of the new developments will be in this area. Two Wheeler production recorded a decline of 3%, the third consecutive year of decline. The decline in Scooter production continues to be higher than Motorcycles this year also. There were multiple price hikes over the last 2 years by Manufacturers. Entry level vehicles took the biggest volume hit being the segment most sensitive to price. Also, high fuel costs, poor rural sentiment etc kept Customers away. New launches have been subdued. Your company continues to be the preferred choice of fitment in most of the new launches. During the year, your company also launched quite a few new products for after market sales which have been well accepted by the customers. The excitement in the electric vehicle space continues with more players entering the segment and volumes more than doubling. Two wheelers performed well in Exports which came as a relief to companies that were impacted by demand pressure in the domestic markets. Tractor Production in financial year 2022 was flat despite the first half

Outlook: The two major issues facing the Auto industry today is managing the supply chain and the high input Costs. Interest rates are also moving up in the economy, which will increase the cost of vehicle financing. On the positive side, demand for all segments is good except for Two wheelers. Pending order book should keep the passenger segment in good stead. An early end to the war in Ukraine would ease the supply chain bottlenecks for the Auto Industry and also push costs downward. Investments in the PLI Scheme in the Auto and Auto Components industries will be a big boost for Automobile production in India. 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 plants, 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: The key risk in financial year 2022-23 are uncertainties arising out of steep increase in raw material prices and inflation which will result in the auto mobile industry remaining in slow lane in financial year 2022-23 and will slow down growth which will pose challenge to the Companys performance. Moreover, the war in Ukraine will pose supply chain bottlenecks for the Auto Industry and also result in uncertainties which will keep commodity prices high. Challenges faced with regard to availability of raw materials due to Covid-19 continues to remain. Moreover, restrictions in China consequent to the Omicron wave will continue to have its impact on the supply chain situation. Human Resources: The core value underlying our corporate philosophy is “trusteeship” and “proprietary interest”. In dealing with each other, the values which are at the core of our HR Philosophy - 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. We owe our success and dominance in the market to the dedication and hard work of our employees who have overcome all challenges to meet the daunting challenges of the market and the ever increasing quality expectations, customer taste and preferences of the customers across the length and breadth of the country as well as in overseas market. As Covid-19 has brought several economies to a standstill, we together combated the unprecedented challenges of Covid-19. Special Task Force was formed to ensure safe work place and extend care for employees family, people and community. In order to strengthen our human resource for meeting the future challenges, we have focused on hiring the best resources available and retaining and developing our existing talent pool.

Discussion on Financial Performance with respect to Operational Performance and Key financial Ratios

	2022-2023	2021-2022
Revenue from operations	4592	2920
Other Income	36	11
Total Income	4628	2931
Profit before tax	271	174
Tax Expense	69	30
Profit after tax	202	144

There is no significant change (i.e. 25% or more) in key financial ratios viz. debtors turnover, inventory turnover, current ratio, debt equity ratio and Interest coverage ratio except for net profit margin (%), operating profit margin and return on net worth. 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. For Viaz Tyres Limited Sd/- Janakkumar M. Patel Managing director DIN: 03329692