MANAGEMENT DISCUSSION AND ANALYSIS REPORT INDIAN ECONOMY India reported a stable rupee, decline in inflation, increased domestic demand, growing investments and a declining oil bill. This reality was in contrast to the situation of the earlier years, marked by erstwhile inflation, high fiscal deficit, dwindling domestic demand, external account imbalance and an oscillating rupee. The inflation decline in the initial months of the year under review was faster than anticipated. A decline in the price of crude and tradeable commodities helped moderate headline inflation. A tight monetary policy helped contain demand brssures, creating a buffer against external shocks and moderating rupee volatility vis-a-vis other currencies. The latest estimates of national income indicate that growth revival, which had commenced in 2013-14, gained vigour in 2014-15. From a macroeconomic perspective, it is then increasingly evident that the worst is over (Source: Central Statistics Office). India is estimated to grow 7.4% in 2014-15 (6.9% in 2013-14). India grew 7.5% in the October-December quarter, exceeding China's 7.3% during the same period, making India the fastest growing major economy in the world. The brvailing economic optimism could catapult India towards double-digit growth across the medium-term (Source: Economic Survey 2015). Indian automobile industry The Indian auto industry is one of the largest in the world with an annual production of 23.37 million vehicles in 2014-15. The automotive sector has a direct bearing on the economy with a near 7% contribution to the GDP, playing an important role in the development of other crucial sectors as well. An expanding middle class, brdominant youth-based population and an increasing tendency among automobile companies in exploring rural markets catalysed the growth of the two-wheeler segment (80% market share) while the passenger vehicle segment accounted for 14%market share. India is also a major auto exporter, with robust export growth expectations. On the back of initiatives by the Government of India and major automobile players, the Indian market is expected to emerge as a global leader in the two-wheeler and four-wheeler segments by 2020. Production The industry produced 23,366,246 vehicles (passenger and commercial vehicles, three-wheelers and two-wheelers) during 2014-15 against 21,500,165 a year ago, a growth of 8.68%. Domestic sales The sales of passenger vehicles grew 3.90% during the fiscal gone by. Within the passenger vehicles segment, passenger cars and utility vehicles grew 4.99% and 5.30% respectively, while vans declined 10.19%. The overall commercial vehicles segment contracted 2.83%. Medium and heavy commercial vehicles grew 16.02% and light commercial vehicles declined 11.57%. Three-wheeler sales grew 10.80% while passenger and goods carriers grew 12.16% and 5.27% respectively during the brvious 12 months. Two-wheeler sales grew 8.09% during the same time period. Within the two-wheeler segment, scooters, motorcycles and mopeds grew 25.06%, 2.50% and 4.51% respectively. Exports Overall automobile exports grew by 14.89%. Passenger vehicles, commercial vehicles, three-wheelers and two-wheelers grew by 4.42%, 11.33%, 15.44% and 17.93%, respectively during 2014-15. Outlook India is expected to emerge as a global destination-of-choice for the design and manufacture of automobiles and auto components with output projected to reach US$ 145 billion by 2016, accounting for more than 10% of the GDP and providing an additional employment to 25 million people. India's automotive industry is expected to reach 7 million vehicles milestone by 2020, making the country the third largest auto manufacturer in the world behind the US and China (Source: The Economic Times). Performance of the Company during 2014-15 Gabriel reported net sales of H14298 million in 2014-15, a growth of 12.2 % over the brvious fiscal. (i) Two and three-wheelers This segment of the Company posted 18% growth, increasing its share of overall revenues. The Company succeeded in increasing its share of existing models and acquisition of future business across all customers, which helped maintain growth and market share. The Company also won accolades from customers on account of qualitative excellence, quick turnaround and operational efficiency. The Company made strategic inroads into new areas by entering into arrangements with global OEMs. The Company took significant steps in increasing capacities to address emerging customer requirements; it commissioned a state-of-the-art R&D centre for two-wheelers at its Hosur plant. (ii) Passenger vehicles The Company's revenues contracted by 2% during the year following 3.9% industry growth in the passenger vehicle segment. The Company continued to leverage technology support from technical partners to cater to growing demands of OEMs. The Company's Khandsa and Pune plants addresses bulk of the demand emerging from this segment. The Company recently invested in upgrading its R&D and testing facilities; it commissioned a top-of-the-line ride control van that offered product validation and testing facilities at the customer brmises, thereby enhancing value. (iii) Commercial vehicles The Company continued to lead the commercial vehicles segment with supplies coming from the Dewas, Parwanoo and Chakan plants. Buoyed by the business in hand and under development, the Company is likely to sustain its growth within India and exports. The Company is also working relentlessly to widen portfolio bandwidth. The Chakan plant is engaged in addressing Railways shock absorber needs for a decade. The Company commenced the development for new generation shock absorbers expected to rebrsent the future of the railways industry. (iv) Aftermarket In 2014-15, the Company registered domestic aftermarket sales of Rs.1,622 million as against Rs.1,416 million in the brvious year, a 15% growth. The Company intends to reinforce its standing in the aftermarket segment on the back of following initiatives: the addition of several new products, the launch of an exclusive 'Elite Retailer Programme' to honour outstanding retailers and improved brand recall among customers through brand promotion activities (hoardings on national highways). (v) Exports The Company grew exports 54% from Rs.552 million to Rs.358 million through the following initiatives: recruited keeping in mind the evolving dynamics of the exports business, engaged in research to drive growth with global OEMs, leveraged the aftermarket segment by strengthening logistical credentials, enhanced brsence across six continents and created strategic business units with dedicated COOs to drive focused growth. Opportunities in the automobile industry The automobile industry is one of India's major sectors, accounting for 22% of the country's manufacturing GDP. It comprises passenger cars, two-wheelers, three-wheelers and commercial vehicles. It is the seventh largest in the world with an annual production of 17.5 million vehicles, of which 2.3 million are exported. The Indian auto market has the potential to dominate the global auto industry, provided a conducive environment is created for potential innovators. Major transitions underway could change the face of India's automobile manufacturing sector in the next 10 years. However, there is an underlying challenge in erratic growth, affect prospects. The Indian automobile industry rides the following realities: Growing demand • Growing demand • Due to a rise in incomes and growth of the country's middle-class, purchasing power has increased • With improved infrastructure, commercial vehicles can access distant markets in less time • The easy availability of auto-finance makes vehicle purchases convenient Cost-competitiveness • Global automobile firms can save 10% to 25% costs shifting their operations to India • An abundance of educated and skilled manpower can moderate wages and enhance productivity Policy support • The government wants India to be recognised as a global auto-manufacturing hub • R&D funds are being allotted by the Central Government to manufacture low-cost vehicles • Foreign investments have been encouraged through de-licensing and 40% reduction in excise duty Opportunities in the auto components market India's auto component sector is forecasted to increase from $43.4 billion (2011-12) to gross revenues of $115 billion by 2020. Exports are expected to increase at a CAGR of 17% by 2021 (Source: ACMA). A slowdown in the sale of automobiles over the last few years staggered the offtake of auto components even as aftermarket component sales exceeded the Automotive Mission Plan 2016 target. India has emerged as the second largest manufacturer of sub-2 litre engines after Europe, generating attractive spin-off opportunities. Human resources Gabriel's success is built around its 2,850 member human capital with an average age of 32.8 years as on March 31, 2015. The Company's endeavour is not merely to enhance its workforce, but to ensure that their competencies are enhanced in line with evolving business needs, that teams collaborate to create an optimal working culture, inculcate industry-best practices, foster an ethically motivated working culture and enhance operational productivity. Internal control systems and their adequacy The Company's internal audit system is geared towards ensuring adequate controls for asset safeguarding, identifying weaknesses, improvement areas and addressing compliances. The Company's Audit Committee was responsible for reviewing the Audit Report submitted by internal auditors. The Committee's feedback was considered with necessary implementation. The Audit Committee invited Statutory and Internal Auditors for regular meetings to review internal control systems. The Board of Directors was kept informed about all major observations. Cautionary statement Statements in this Report describing the Company's objectives, projection, estimates and expectations may constitute 'forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ materially from those either exbrssed or implied. Factors that could make a difference to the Company's operations include, among others, raw material prices, price increase from customers, government regulations, tax regimes, economic developments in India, natural calamities and other incidental factors. |