MANAGEMENT DISCUSSION & ANALYSIS India Economic Overview India continues to be one of the most promising economies to sustain a strong growth in its GDP. The current growth in GDP, as per the new series, places it at 7.40% for FY2015 as against a revised past trend of 5.10% and 6.90% in FY2013 and FY2014, respectively. The revised trend is estimated to take GDP growth to 7.50% plus in FY2016 and FY2017. A year after formation of the new Government, positive impact of Government policies and decisions reflect at the ground level, at least partially. The Government seems to be moving in the right direction - balancing the act of reforms, capital spending to boost economic recovery and fiscal prudence. During FY2015, the Indian economy stood up to the challenges of consumer inflation, policy paralysis, weakening of Indian rupee, a widening current account and fiscal deficits and an unstable global environment. It is now on a firm path of a revival with a wave of optimism. The strong uptick in GDP growth was accompanied by a receding inflation - at 5.10% in January 2015, considerably lower than double-digit figures in 2013. Current account deficit and fiscal deficit, the prime causes of concern in 2013, are now within manageable levels. The Reserve Bank of India (RBI) has projected a moderate-paced recovery in FY2015. Despite GDP growth in the brvious two iscal years being at or sub 5%, real growth is seen at 5.50%. Further recovery is expected from an improvement in investment climate with better governance, transparent, effective and efficient regulatory and legal regimes, improvement in technical efficiency, institutional improvements, improved labour mobility, and other such reforms. A boost is also expected from lower policy rates and stable commodity prices, with India becoming an attractive destination among peers. Irrespective of differences in the estimation method, the consensus is that GDP will maintain an upward movement by a minimum of 100 basis points year-on-year, if Government spending and policy initiatives remain on track. With a high growth potential, India is seen as a bright spot in the global economic landscape. (Source: RBI's Annual Report 2013-2014) However, the RBI has cautioned that a deficient rainfall can have a dampening impact on India's economy and lead to higher inflation. Indusries and sectors linked to agriculture will be negatively impacted, while demand for automobile sales will also be afected. Industry Overview The Indian auto industry is one of the fastest growing sectors in India, accounting for 22% of India's manufacturing gross domestic product (GDP) and providing for around 18% of excise duties to the state exchequer. It is one of the largest in the world with an annual production of 23 million vehicles in FY2015. An expanding middle class, a young population, rising disposable incomes, tailor-made finance schemes, easy repayment schemes, and an increasing interest of companies in exploring rural markets have been key growth drivers of the industry. The industry has created nearly 19 million jobs in the country through direct and indirect employment. Automotive hubs across the country have given rise to ancillary industries engaged in manufacturing components for automobiles. India is a substantial auto exporter, with solid export growth expectations for the near future. Various initiatives by the Government of India and major automobile players in the Indian market are expected to make India a world leader in the automobile market by 2020. With a year-on-year rise in exports, the industry has increased the brsence of the nation in international markets. The automobile industry in India witnessed a healthy growth between FY2008-13, even as FY2014 turned out to be a difficult year due to rising inlation, increased fuel prices and unfavourable interest rates. This resulted in high cost of ownership and largely affected the industry in the backdrop of a slow GDP growth. FY2015 was all about recovery. Domestic vehicle sales grew 7.22% at 19,752,580 units from 18,423,223 units sold in FY2014. This was the first time in three years that passenger vehicle sales recorded positive growth, after high fuel and interest cost coupled with economic slowdown dented automobile sales. Exports in FY2015 shot up nearly 15% to 35,73,806 units, in comparison with 31,10,584 units exported in the brvious financial year. Improving afforda bility and rising incomes are seen driving solid growth for India's automobile industry over next five years. Domestic sales of passenger vehicles are seen recording 9.50% CAGR between 2014 and 2019, while commercial vehicles are projected to record 6.80% rise (Source: Frost & Sullivan). The potential of the industry is immense in terms of revenue generation and employment. The sector, comprising of the automobile and auto component sub sectors, is one of the key segments of the Indian economy having extensive forward and backward linkages with other key segments of the economy. The automotive industry ably fulfils a catalytic role by producing a wide variety of vehicles such as passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, and tractors, among others. India’s Automobile Industry: Growth Drivers Improving A/ordability – With declining fuel prices and moderation in in$ation, purchasing power will improve High GDP Growth Rate – Expectation of strong economic growth is leading to improving consumer sentiments Rising Incomes – Rising per capita income may encourage discretionary spending Strong Demand from Rural Markets – Demand from rural segment has been on a continuous rise Further RBI Easing of Monetary Policy – Softening of interest rates may lead to higher sales owing to lower cost of ownership 3-Wheeler Industry India is the world's foremost producer, consumer and exporter of 3-wheelers. Amidst a challenging environment, the domestic 3-wheeler industry sold 531,927 3-wheelers in FY2015, owing to fresh permits offered for passenger variants. This data, furnished by the Society of Indian Automobile Manufacturers (SIAM), indicated a double-digit growth of 10.80% over the brvious year. In FY2014, the industry reported total sales of 480,085 units, which contracted 10.90% during the year owing to a marked reluctance of road transport authorities to issue fresh permits. In the brvious year, passenger segment volumes (accounting for majority of 3-wheeler sales) also dropped, largely due to lower demand from key metros with lower permits ofered. Urban and rural markets were both affected by rising interest rates, increasing petrol prices and overall inlation. In FY2015, a total of 949,021 units were produced, indicating a 14.30% rise over 830,108 units produced in FY2014. About 407,957 units were exported in the year under review, clocking 15.40% rise over 353,392 units exported in FY2014. Demand for 3-wheelers continued to remain healthy in the domestic market. On the export front, there has been a growing demand from nearby markets, especially from Sri Lanka, Bangladesh and several parts of Africa. The passenger segment accounts for around 83% of India's 3-wheeler market, while cargo constitutes the remaining 17%. Demand for passenger 3-wheelers is higher in domestic and export markets. On the other hand, demand for goods carriers arises brdominantly from the domestic market. Export markets include the developing and under-developed countries such as Bangladesh, Sri Lanka, Indonesia, African countries and Latin American countries. Underlying Growth Drivers India is one of the largest manufacturers of 3-wheelers, producing 950,000 units per annum, which is projected to grow 6% to 8% per annum. The domestic 3-wheeler market currently stands at 480,000 units. India's 3-Wheeler Industry: Key Enablers and Growth Drivers • An important element for goods transportation • Provides last-mile connectivity in metro/ urban markets where entry of large Commercial Vehicles into city limits is getting increasingly restricted • Ideal and most-widely used mode for transportation in rural/ semi-urban markets • Increased Government focus on improvement in rural road infrastructure Passenger Segment: • 3-wheelers emerge as popular mode of passenger transportation • New permits for CNG/LPG driven vehicles are easily available • Passenger application in rural and semi-urban areas continues to grow • Availability of financing by banks and NBFCs • Government focus on improvement in rural road infrastructure Cargo Segment: • Growth in key user industries such as FMCG, Pharma, Retail and Construction • Government focus on improvement in rural road infrastructure • Major retail push by FMCG and consumer product players in Tier-II cities and smaller towns where 3-wheelers serve as the ideal mode of goods transportation •Restriction imposed on entry of large commercial vehicles in metros and major cities •Availability of inancing by banks and NBFCs Outlook The global 3-wheeler market is projected to grow at a CAGR of 13% during 2014-19, while the domestic 3-wheeler market is projected to grow at 5% CAGR (Source: TechSci Research). Rising demand for cheap and convenient public conveyance in rural and semi-urban areas and an increasing number of permits issued by state governments are playing a key role in driving the domestic 3-wheeler market. Moreover, the establishment of new CNG illing stations in semi-urban and rural areas and inception of new engine and fuel technologies are expected to further boost passenger segment in the future years. Growth drivers for 3-wheeler cargo segment are:a key focus on improvement in rural road infrastructure; growth in user industries like FMCG, pharma, retail and construction; major retail push by FMCG and consumer product players in Tier II cities and smaller towns; and restriction on entry of large Commercial Vehicles in metros and major cities Company Overview About Atul Auto Atul Auto Limited (AAL) is a leading manufacturer and the fastest growing player in 3-wheeler vehicles industry. It is a strong player with a product portfolio comprising 45 models catering to passenger and goods carrier segments. Its key brands are Shakti, Smart, Gem and Gemini. It caters to a diverse customer base in cargo and passenger segments with a payload capacity of 350 kgs and 500 kgs. We have a state-of-the-art manufacturing facility at Shapar, Rajkot at Gujarat. This has an installed production capacity of 48,000 units per annum, which can be extended to 60,000 units per annum by incurring minimum capex. The manufacturing facility consists of integrated manufacturing processes such as manufacturing of components, fabrication of chassis, br-paint facility, paint shop, assembly line and end-of-line testing. We are focussed on improving productivity and increasing operational efficiency at the plant through local level innovations and process re-engineering. We are in the process of setting up another manufacturing facility at Ahmedabad with an installed capacity of 60,000 units per annum. What Differentiates Us: • Ability to cater to a larger market size • Suitable for urban and overseas markets • Available with alternative fuels (CNG and LPG) • Complete portfolio consisting of all types and sizes of 3-wheelers for both platforms Operational Performance Despite industry challenges, the Company's operational performance was on an uptrend. In our full year of operations, sale of 3-wheelers at Atul Auto Limited was recorded at 41,598 units, a 10.70% rise over of 37,557 units of 3-wheelers sold a year earlier. The Passenger segment recorded 9.70% higher sale at 23,747 vehicles, compared with 21,640 units sold a year earlier. The Cargo segment grew the highest at 12.10% as it sold 17,851 3-wheelers, compared to 15,917 units sold in the brvious year. Our key brand Atul Gem, which is now in its 7th year, recorded sale of 25,808 vehicles - reporting a volume growth of 10.76% year-on-year vis-a-vis 21,866 units sold a year earlier. Atul Shakti recorded total sale of 11,959 units, compared to 11,418 units earlier. To sbrad our network further, we strategically initiated sale of 3-wheelers in the metro cities of Mumbai, Delhi and Bangalore, which contributed to higher sales recorded by the Company in FY2015. Going forward, we aim to continue our strategy of large-scale penetration in the key markets of India. our Competitive Advantages Increasing Market Share Atul Auto maintained a strong performance with rising 3-wheeler sales translating into a market share of 7.55% in FY2015, according to the data furnished by the Society of Indian Automobile Manufacturers (SIAM). In the cargo segment, it commands an 18% market share, which grew from 16.70% in FY2014. Market share of its 0.5 tonne 3-wheeler stands risen to 15.5% vis-a-vis 12.90%. Its passenger segment market share is 13.80%, up from 10.80% recorded a year earlier. We grew our market share in the Cargo segment and further strengthened our leadership position in the 0.5-tonne cargo category due to our strong and well-engineered body, solid and well designed and constructed chassis and excellent after-sales service. Export Performance Your Company's export performance is improving year-on-year. We exported 1,464vehicles in FY2015, registering a 150% rise over 585 vehicles exported in the brvious financial year. Exports accounted for 3.50% of the net sales. Our vehicles were exported to 6 countries - South Africa, Nigeria, Bangladesh, Kenya, Tanzania and Mozambique. We continue to gain our market share in the key overseas markets of Africa. Moving forward, our key emphasis will be on foraying into the key markets of Egypt and Ethiopia. Financial Highlights • Our total turnover increased to Rs. 490.07 crore, compared to Rs. 429.26 crore in the brvious year • PAT for the year was Rs. 40.57 crore, compared to Rs. 29.79 crore in the brvious year • EBITDA increased to Rs. 57.92 crore, as against Rs. 45.39 crore in the brvious year • EPS for the year was Rs. 18.50 per share, compared to Rs. 13.60 per share in the brvious year Product Launch Your Company has been launching a slew of new product variants across the 3-wheeler segment. This is aimed at consolidating its brsence in the existing and new markets. Your Company is now launching a new product focussing on efficiency and effective maintenance - the petrol version, paving way for it to enter a new segment. Moving ahead, we will continue to add new variants of our existing models and new models in the market. Future Growth Strategies in Plav • Continuously introducing new products across 3-wheeler segment • Aggressive entry into new markets Consolidating brsence in existing markets Strategic tie-ups with leading banks and NBFCs to provide retail financing Current capacity of 48,000 vehicles per annum to be expanded to 60,000 Adding installed capacity of 60,000 vehicles per annum near Ahmedabad Research & Development Reengineering is an ongoing exercise at Atul Auto. Our constant focus is to align our products to meet the current market needs. We keep launching products that meet market dynamics and also keep developing variants for passenger and cargo applications in order to address new market segments. As a key initiative, we launched Customised Vehicles in passenger and cargo segment with customised applications. Till date, we have launched about 44 different applications in this segment, some of which include Chicken Carriers and Ice-cream Suppliers, among others Connecting with Bharat Your Company is sensitive and committed towards rural and semi-urban India. We have reached out and connected with people in the hinterland. Through our initiatives, we endeavour to strengthen our relationships with customers and stakeholders in rural India. We wish our customers act as Brand Ambassadors to generate referral sales. We reach out and connect with customers from all cities. In addition to this, each of our regional oice has a Customer Relationship Manager ensuring delivery of the highest level of customer satisfaction. Our dedicated rural support executives at dealerships travel deeper into small towns and cities to build relationships. Through this, we endeavour to enhance customer satisfaction and ensure increased levels of member engagement. In a major rural market initiative during the year, we appointed 500 key technicians across India as service touch-points. These technicians, referred as Atul Sahay, will be equipped with all spare parts to provide initial support to a vehicle. Trained and certified by Atul Auto, these technicians will be the first port of call in case of a vehicle break-down and will save customers in rural pockets from travelling to a service centre in the nearest city. Dealer Network Our dealer network has increased to 320, which includes 200 primary dealers and 120 sub-dealers. During the year under review, the percentage of institutional sales to our total sale has also been on a steady rise. Besides aiming to increase the number of customers and volume of transactions, we seek to enhance revenue opportunities for dealers as well. As a first initiative of its kind in the domestic 3-wheeler market, we joined hands with Bank of India and IDBI Bank to enable channel financing for our dealers This is a unique proposition which not only provides them with funding as a "stop gap arrangement", it also handles their short-term working capital needs. The sanction limit for Bank of India is Rs. 100 crore, while for IDBI Bank it is Rs. 50 crore HUMAN RESOURCES Talent sourcing and management continues to be at the heart of Atul Auto's HR strategy. Our attrition rate is low compared to other automotive companies in India. On the managerial side, our senior management underwent various training programs aimed at holistic development and to craft organisational competencies. We conduct programs to enhance the company's efectiveness and help it become a wellorganised and diversiied corporation, with an acute focus on capability development and in attracting and retaining talent. Our emphasis has always been on building a talent pipeline taking into account a medium-to-long term perspective. The Company tries to attract the right talent, build capabilities and facilitate career development to drive organisational objectives. The total number of employees with the Company were 951 as on March 31, 2015. Awards & Recognition Atul Auto Limited has been awarded as the "Best SME of the Year 2015" by Nav Gujarat Samay, a popular Gujarati daily. This award was brsented to the Company at an auspicious ceremony of Nav Gujarat Business Awards 2015. Turnover During the year the turnover of the Company has grown to Rs. 490.1 crore compared to Rs. 429.3 crore for FY2014, resulting in a growth of 14.2%. Material Cost During the year the Raw material Consumption increased to Rs. 372.2 crore from Rs. 331.7 crore for FY2014 but the ratio of Raw Material consumption to Sales has positively decreased to 75.9% from 77.3% compared to brvious year. Employee Benefit Expenses Employee benefit expense (other than managerial remuneration) increased to Rs. 30.3 crore during the year as against Rs. 25.7 crore during the brvious year. This increase is mainly due to the salary hike given to employees and recruitment of fresh employees. Debrciation and Amortisation Debrciation and amortisation charges for the current year amounted to Rs. 5.6 crore, as against Rs. 5.2 crore during the brvious year. Addition to fixed assets during the year was Rs. 33.5 crore, as against Rs. 14.8 crore during the brvious year. Provision for Tax Rs. 19.2 crore was provided during the year towards current tax as against Rs. 11.3 crore during the brvious year. The Company also reversed Rs. 0.5 crore towards deferred tax during the year, which was provided at Rs. 1.6 crore for brvious year. Cash & Cash Equivalents The Cash & Cash Equivalent of the company as on 31.03.2015 was Rs. 27.4 crore as compared to Rs. 45.1 crore as on 31.03.2014. During the year the Company had used the surplus cash lying with it for the purchase of land near Ahmedabad for it new greenfield project. Information Technology Your Company's constant priority is to implement the latest and most advanced IT tools. We endeavour to leverage these to gain maximum benefits for the organization. All our branches and regional offices are well connected, ensuring timely and qualitative collection and dissemination of business information. We are able to manage the scale of the Company by capitalising on ou excellent IT systems and processes. Opportunities and Threats Factors like supportive government and regulatory policies, optimal business environment and accessibility of inexpensive proficient workforce have transformed India into a global auto-manufacturing hub. Improvement in macro-economic environment, increasing disposable incomes in rural-agri sector, rising purchasing power of middle class, and availability of auto-finance are other signiicant opportunities in the 3-wheeler automobile segment. However, changes in the regulatory environment and government policies, rising inflation and production costs, and foreign exchange rate volatility can threaten the fast growth of India's automobile sector. Internal Controls The Company has sufficient and commensurate internal control systems to match the size and the sector it falls under. The Company has well-defined and clearly laid-out policies, processes and systems. These are strictly and regularly monitored by the top management and any digression or discrepancy is immediately flagged off and corrected. All requisite regulations, rules and laws of the land are strictly followed. The Company has a sound system for financial reporting and well-deined management reporting systems. These are supported by Management Information System (MIS) that regularly checks, monitors and controls all operational expenditure against budgeted allocations. The Company also has a regular internal audit process that is monitored and reviewed by the Audit Committee, which ensures that any deviations from set benchmarks are immediately reported and corrected. The Company regularly keeps upgrading its systems and processes to ensure these are up-to-date and the latest. The outlook for India's automobile sector is poised for steady growth, as India's economic activity gains steam. Growth drivers such as rising income levels, growing aspirations of rural India, increasing urbanisation necessitating increased mobility needs and changing consumer pattern are fuelling healthy demand. The market for 3-wheelers is also expected to witness phenomenal growth. Changing in FDI policies are driving growth for commercial loading of 3-wheelers. Rising population and increasing need for afordable and convenient transportation is fuelling the market. Risks & Concerns • The economic environment, pricing brssure could negatively afect our revenues and operating results. • Our revenues and expenses are difficult to brdict and we may not be able to sustain our brvious proit margins or levels of proitability. The overall economic environment, pricing brssure and difficulty in procuring raw material at competitive prices may afect our revenues and operating results. • Our acquisitions, strategic investments, strategic partnerships or alliances may or may not be successful. • Our inability to manage our growth can disrupt our business and reduce proitability. • Being subjected to litigation, which is adversely determined, could harm our business and operating results. Cautionary Statement This document contains statements about expected future events, inancial and operating results of Atul Auto Limited, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, brdictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those exbrssed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirely by the assumptions, qualifications and risk factors referred to in the management's discussion and analysis of Atul Auto Limited's Annual Report, 2014-15. |